Bausch Health Companies Inc. (BHC) Q2 2008 Earnings Report, Transcript and Summary

Thank you for calling the Medicis second quarter 2008 finance results conference call. Today’s call is being recorded and is being webcast live on the company’s website at www.medicis.com. I would like to remind you that all discussions today include forward looking statements. These statements are based on current assumptions made by Medicis. Based on historical trends, current conditions, expected future developments and other factors that believe is appropriate today. Factors may cause actual results to differ materially from those projected in forward-looking statements. You can find a discussion of these factors and more information about Medicis in Medicis' filings with the Securities and Exchange Commission. The assumptions underlying the forward-looking statements can change and Medicis disclaims any obligation to update those statements. At this time I would like to turn the call over to the Chairman and Chief Executive Officer of Medicis, Mr. Jonah Shacknai. Please go ahead, sir.

Thanks, good afternoon everyone and welcome to our second quarter conference call and hope everyone is having a pleasant summer. I know school is around the corner and certainly we are counting on that for our acne business. Of course we heard the safe harbor disclosure by the operators, so I incorporate that by reference and this call is being webcast live on our corporate website www.medicis.com in the investor relations section and it will be available for two business days following this call. Our references to non GAAP figures in this webcast are reconciled to GAAP figures as noted in today’s press release which similarly can be found at www.medicis.com. I am joined here at today’s conference call by Mark Prygocki our Executive Vice President and Chief Operating Officer, Ric Peterson our Chief Financial Officer, Vincent Ippolito our Executive Vice President for Sales and Marketing, Joe Cooper our Executive Vice President for Corporate and Product Development and Jason Hanson our Executive Vice President and General Counsel. Medicis reported revenue for the second quarter of 2008 of approximately $132.5 million which was within the guidance range and gross profit margins of approximately 93.1%. Total revenue increased approximately 22% year-over-year primarily due to the strength of SOLODYN. We would anticipate gross profit margins for the reminder of the year to be between 92% and 93%. Non-GAAP earnings per share for the second quarter of 2008 was $0.40 per diluted share an increase of approximately 44% as compared to the same quarter in the prior year. This compares favorably to the previously published non-GAAP, EPS guidance of $0.32 to $0.35 per diluted share for the second quarter. Non-GAAP EPS was positively affected by the higher gross profit margins, the financial impacts due to the redemption of bonds. We reported approximately $15.3 million in cash flow from operations. This reflects the $25 million payment to Ipsen for the Reloxin BLA acceptance by FDA. Total cash, cash equivalents in short term and long term investments were approximately $568.7 million at June 30 2008, and of course in July following the quarter end Medicis paid $150 million in cash for all the outstanding shares of LipoSonix. Additionally in connection with the bond repurchase, we anticipate paying approximately $35 million in deferred tax liabilities in quarter three. The compact balance is approximately $ 385 million. The company repurchased the 1.5 % contingent convertible senior notes due 2033 in June for $283.7 million plus $2.2 million in interest. There were 7.3 million shares underlying these bonds. We announced a $0.04 dividend in June payable on July 31, to share holders of record at the close of business on July 1. Our focus continues to be on sustainable long term growth. There are several target areas and important strategies we feel worthy of discussion with investors today as we enter into the second half of the year. We appreciate your understanding and your enthusiasm as it relates to the importance of the SOLODYN franchise to our business as April marked a major milestone with SOLODYN achieving 1 million total prescriptions billed to date. We spend a great deal of time in our efforts strategizing around the SOLODYN franchise and predicting the timing to the best of our knowledge of the occurrences. There is not a clear picture of how the time line unfolds and there are many unknowns. The timing of patent that may issue by the Patent and trademark office, the timing of approvals of our additional forms of SOLODYN by the FDA, the timing of the FDA’s review of our citizen’s petition and the timing of the approval if at all of the generic form to SOLODYN. Our SOLODYN strategy is highly dependent on the actions of governmental agencies involved and that of course by their nature is highly unpredictable. The continued growth of SOLODYN is critical to achieving our revenue projections especially related to the impact of the US economy on our esthetic franchise. We have been diligently pursuing certain strategies to help fortify the viability of SOLODYN’s future. We have one issue patented that we believe protects SOLODYN. In addition as of July 31, 2008 we have filed twelve additional patent applications with the Patent and trademark office including more than 200 claims covering SOLODYN. As these patent applications have entered some substantive examination Medicis is unable to comment further on their status. We cannot predict when or in what form additional patents will issue and we expect that some will be abandoned or otherwise not issued by the patent and trademark office. However, we are focused on securing the strongest claims possible to cover SOLODYN for the future. The company has filed the citizen’s petition with the FDA regarding the bio-crapulence between the dosage strength of SOLODYN and we are awaiting the FDA’s response. We anticipate being on the market with follow-on forms of SOLODYN in this calendar year 2008. This time line is of course subject to FDA approval. The company currently has several additional programs underdevelopment relating to the SOLODYN franchise with estimated market introduction at various points in time over the next five years. The company also is pursuing several separate programs exploring separate unique and advanced forms and technologies within the SOLODYN franchise. We continue to believe that there is a large untapped population in the US market for facial esthetics products. We believe the US economy has impacted the growth projector of this market and will continue to do so in the near future but will we bounce strongly as we enter into better economic conditions. As a rule over called on Universal positions we continue, we believe strongly to be the market leader with the Restylane family of products. In fact among the doctors called on by Medicis nearly every docile experienced sequential revenue growth while Medicis has maintained its price. Approximately 100 sales specialists selling Restylane to our target audience, we are actively gearing up for an early 2009 launch of Reloxin in the liquidized seddex botulinum toxin type A market in the United States. The development of Reloxin in the US for esthetic use is proceeding as expected with productive communications with the FDA. We are anticipating an increase in the size of the esthetics sales force in order to sell both the Restylane family of products and Reloxin to a broader audience of physicians and health care providers. We believe the dual product offering combined with the broader reach of doctors will substantially increase our esthetics and sales and profitability. In addition to the near term growth opportunity in the facial esthetics business the company is actively pursuing a number of opportunities to improve Restylane’s product offering indications and labels. We believe that these development improvements and new product offerings will enable the Restylane family of products to retain its competitive advantage in the United States as it relates to other dermal filler products currently on the market and those that have any visibility whatsoever that are under development. We believe our important collaboration with Revamps and its early stage botulinum toxin type A, product will expand the facial esthetics market and will be an important addition to the facial esthetics development portfolio. The struggling US economy has highlighted the need and the benefits of broadening Medicis’ product portfolio beyond our national borders. The acquisition of LipoSonix by Medicis has enables the company among other things to immediately enter the worldwide market with a LipoSonix technology beginning in the European Union with issuance of a CE mark. The company is beginning a robust European clinical trial to assist in the launch throughout Europe aggressively in 2009 and other locations around the world upon regulatory acceptance. Feedback from the seven unions currently in use continues to be extremely positive and we continue to believe the market potential for a technology that can safely and non-invasively reduce fat in a meaningful way for patients as the market potential for us, several hundred million a year. We appreciate the concerns from investors of near term dilution in EPS and we will make every effort in the third end quarter to exceed the EPS guidance in today’s press release which now stands at $0.17 per share lower in our annual guidance prior to the announcement of the LipoSonix transaction. In aggregate, Medicis has more than ten active development programs. These include new products offerings and product line extensions. In addition the company has acquired and is evaluating and screening the portfolio of over 200 dermatologically active compounds available under license for development by Medicis. We are also pursuing a number of business development collaborations for esthetic and therapeutic programs to further enhance our product offerings. We believe the company is well positioned with these opportunities and others that we are pursuing, so that we may continue to grow importantly in the future and offer our customers and their patient’s outstanding products and technologies. As we look at recent events my colleagues and I just returned from the American Academy of Dermatology Summer meeting which took place July 30 through August 3 in Chicago. In terms of upcoming American Academy of Facial Plastic and Reconstructive Surgery annual form meeting similarly takes place in Chicago on September 18 to 21. The full clinical dermatology conference takes place October 16 to 19 in Las Vegas Nevada, the American Society of Plastic Surgeons or an ASPS annual meeting on October 31 to November 5 also in Chicago Illinois. The American Society for Dermatologic surgeries annual meeting November 6 through 9 in Orlando Florida. For upcoming investor conferences we plan to present at the Thomas Weisel Partners helper conference 2008, September 4 in Boston Massachusetts, my colleague Mark Prygocki will represent the company. Our all and all were very pleased to be building a business for this sustainable and innovative. Certainly there are issues that concern share holders. We spend a great deal of time and energy considering those issues acting upon them but we feel aggressively a very bullish about our future again the idea that build a long term sustainable business that we will do our shareholders proud create tremendous value for our customers and their patients and be the source of pride for our employee population. So as always we thank you for your time and attention and we will be happy to listen to any questions that you have and my colleagues and I will do our best to answer them.

(Operator instructions) Let’s begin with Donald Ellis of Thomas Weisel Partners.

Thank you and good afternoon everyone. My first question is for Jonah, and it’s regarding your position and your opinion on combining local esthetics (inaudible) with derma fillers. A product was launched today which includes about reserve 25% lidocaine and patients, when I speak to them about where exactly or when they exactly feel the pain with a derma filler injection, is that the site where the needle enters the skin and in which case lidocaine is now like would be that effective. When you look at the label, the address event section of the product layout with that product that was launched today, you have a 52% when you had a mild moderate and severe pain you see about 52% influence in mild moderate and severe pain. Do you think there is a material benefit in adding a local anesthetic whose derma fillers, when based in on the label doesn’t look like to be maturely different from those that don’t contain lidocaine?

Sure, well I start off by saying that we do not expect the product that was launched today to be a major competitor in the market place, and it is not the first product in the market to contain lidocaine. After all the old collagen products, some of them also contained lidocaine and we have seen they’ve gone. The question of whether lidocaine co-mixed at manufacturer with hyaluronic acid or other substances materially reduces pain, I think is a matter of opinion and patient experience. They are physicians and patients who will perceive a benefit from the addition of lidocaine particularly in certain anatomical sites of injection. There are other patients that may not realize the material benefit because the hyaluronic acid itself is essentially with the needle dissecting tissue and filling potential space causing a bit of tissue compression and that is what may cause the pain rather than the insertion of the needle. Probably there is a market for both kinds of products out there and we have every reason in the world to believe the Restylane can be effectively marketed and gain regulatory approval with the lidocaine addition, I am sure we will be in that marketplace, but again how these products play out in terms of patient and physician preference is really going to come down to subjective view. Our believe again is there is a place for both product and the duration of injection will certainly effect whether the lidocaine is an effective anesthetic agent, or shorter duration injections that may not be terribly meaningful, but where the physician is using the serial puncture technique in a finite area of anatomy it may provide benefit. So, I think this is something that we will see. The addition of lidocaine, does not materially affect the safety or longevity of the product and it will be one of many offerings that I think becomes important in this category.

Alright, thanks. My last question is for either Rick or Mark. Can you help us with kind of allocate SG&A expenses for the third versus the fourth quarter of this year?

Absolutely, as we lookout for the rest of the year, we would expect that our guidance range of 55% to 56%. We would however, anticipate as spike in Q3 due to integration costs associated with LipoSonix, consultants etc, associated with that and coming back down in Q4 for an average of about 55% to 56% for the year.

Great. Thank you very much.

Your next question comes from the line of Corey Davis – Natixis.

Thanks very much, two questions. First, Jonah maybe I’m reading too much into the nature of your comments, but I have listened to lot of these calls and you seem to have spent much less time focusing on this actual quarter and much more time in the bigger picture things. So, should I read anything into that, both in the short-term and long-term in terms of earnings basis?

I think you should read into it that we are listening carefully to the concerns of our shareholders and within that the strengths of our transparency and researching development in other areas, trying to comment and provide color that we hope well give investors quality of our feeling and prediction.

Second question would be am I correct in assuming that because it’s one BLA that both you Ipsen have to get approval at the same time?

No, that would be an incorrect assumption.

So, you can get a final approval before they could…

Or visa versa, yes and I think you know that they are one BLA, but really not. They share a common sponsor, but have essentially been divided between the neurologic and aesthetic use. They are being reviewed by a two separate and distinct divisions and there are differences in packaging and other elements, so in fact there will be two separate and distinct approvals from the agency. The timing of which will really be dictated by individual PDUFA dates and the cycle of review within the respect of divisions.

And how the two companies, can the two companies have discussions on price?

I’m sorry. We have obviously a very close and collaborative relationship with Ipsen. We have really taken different clinical paths in the preparation of our respective BLAs, but there are common elements obviously in the manufacturing chemistry kind of issues. So, we deal this as a distinct product they will have distinct trademarks as I said distinct packaging elements and will be priced, I think appropriately for each market, but obviously we have a closing good relationship with Ipsen and I think we each have a best interest in one another is great success.

Last question, you’re not going to answer, but you want to predict whether or not you’ll get approval this year or next year for Reloxin

Well I think what we’ve said publicly is that our submission is consistent within early ’09 approval. So, we’ve said that the first quarter of ’09 is when we expect to be launching the product.

Great thanks.

Obviously we would be very happy to have pleasant surprise and that regard, but I think this is what is reasonable to anticipate.

Great.

Your next question comes from the line of Michael Tong with Wachovia Capital Market.

First question has to do with looking out for the second half of ’08 guidance. If I look at the revenue guidance it looks to me the Q4 sequentially up from Q3 and yet your commentary regarding a good third quarter from the acne products seem to have suggested otherwise, so just wondering what’s the fall process behind the Q4 revenues spite. Is it the seasonal pick in aesthetics business?

In the fourth quarter, you’re exactly right there Michael. In the third quarter its really a strong acne quarter, which continues into the fourth quarter towards the end as you will seems scripts historically, towards the end of December you get the back from college, students and you get a pickup in scripts then again. So, the acne category we’re expecting to be strong both in the third and fourth quarter, the different between the third and fourth quarter is non-acne term in the cash pay category, which typically rebounds in the fourth quarter.

And so can I assume that your current revenue guidance does not include potential SOLODYN next generation product?

Well, it really goes by scripts Michael. So, right now you could say includes, but we if we would to have an initial stocking in the third or fourth quarter by the end of this year we necessarily wouldn’t be able to book the revenues. So, they don’t go hand-in-hand, so it’s hard to predict. It depends how many scripts had generated between the time we launch and years end. So, I would say it is included in there because as Jonah said in his initial comment that we anticipate having follow-on forms by the end of this year.

Okay and then my final question is more for Jonah perhaps. In your conversation and communication with the FDA have you detected that the FDA might have turned more causes towards roll out of cosmetic or aesthetic use?

Michael I think the FDA is always appropriately cautious when improving new things, whether they’re biologics, drugs or devices we put together. We, put together we think an extremely compelling submission that contains a clinical data from 1000 of patients as to safety, as to efficacy there are long-term safety elements many of these data are now being presented at academically oriented meeting. So we feel very good about the submission and there is nothing so far that would be disabused of our hope that the application would be approved on-time and we look very compelling label. So, no but again the FDAs, is a cautious agency that’s how they’ve always been and we know that they will exercise appropriate to strength in approving any new product only at the point that they believe it to be safe and effective.

Great thank you.

Your next question comes from the line of Marc Goodman with Credit Suisse.

Can you talk about the pricing in the filler market, has it changed much in the past quarter so, as in the economies that little tougher?

Marc it has changed, not really on our end, but I think that many of the competitors in the market to continue to see erosion of their average selling price through the introduction of specials and other inducements to physicians to purchase the product. There is the special going on right now from one of our major competitors that in addition to a very low price offer ten free syringes with every 50 purchase. So these sorts of things, in fact I know two companies that have this on. We have another competitor that has a selling price about a $100 a syringe for their offering of products. So, these no question that there’s been deflation of the average selling price through we take all the products in the market, but we have been very pleased to be able to maintain our price because of the proceed quality and value of Restylane and PERLANE, and the significant loyalty that those product have among high injecting plastic surgeons, dermatologists, Facial Plastic Surgeons and Ocular Plastic Surgeons and their patients.

Second question is just on spending you had mentioned that you’re going to increase your sales force for the launch of the Reloxin you’d mentioned that many times with forward expecting. Can you help us just with the timeline of your thought process just because obviously, you don’t know when you are going to get approved and then also talk about the incremental promotional spending necessary for the product just give us some type of magnitude of how it compares to other launches or things like that is if you don't want to do this numbers.

Marc, Mark Prygocki. As it relates to the timing of the incremental sales people, there’s a lot of work going on right now and preparations for this launch. Analyzing territories and where we need body, so I think that work is on going. The cost and the impact on the business really won’t happen until the fourth quarter there’s incremental dollars being spent right, but I think the magnitude of the dollars really won’t hit until really the first quarter, approval as well as the launch cost and things like that I think we can be more specific in general terms when we give ’09 guidance, but all the incremental this some what small as it relates to the business incremental cost that are going on now are really built into the exiting guidance that we’ve given.

We adding reps in the fourth quarter this year.

We conducting interviews in the third and fourth quarter trying to identify people, but they really don’t come on Board until the first quarter.

And then as for as promotional cost, I mean will this be bigger, smaller than what you did for Restylane when you launch that are few year ago?

I think we prefer to hold off until the ’09 guidance call to start giving directionally as far as how much within in the spending against Reloxin.

And I guess one other question on the LipoSonix, any change as far as your starts on a European launch.

No , the product has had a soft launch in Europe with the units being placed in the offices of key customers opinion, leader but we are expecting a very aggressive effort in Europe where I think the units are already in high demand and now becomes a question of that determining the correct location of customers and scaling up manufacturing at the Bothell, Washington LipoSonix, Medicis facility to able to accommodate what we think will be significant demand and obviously having the service capacity on the ground in Europe to be able to make sure that we’re shipping replacement transducers on a regular basis to our accounts that’s enhancement to disposable part of the business and making sure that from a maintenance and service standpoint that we are fully able to exceed the expectations our European customers.

And that roll out is happening now or just a quarter to away from the bigger rollout, yes.

We’re certainly a quarter away from the bigger rollout yes.

Thanks

And Marc, just a close out to the SG&A discussion. We anticipated in the close of the LipoSonix transaction which incorporates some of the Reloxin launch the fact that we return to those SG&A margins in the mid fifties to the lower fifty range so, that’s really built into the numbers going forward in ’09 as far as our objective. So, thanks, I know you dropped off already Marc, but thank you.

Your next question comes from the line of Ken Cacciatore with Cowen and Company

I am assuming that you have to do PDUFA dates on some of these new Restylane formulation, so I was wondering have you received a response later on any of these formulations and if you have not yet, do you need disclose to us when you receive a responses is it material to you all or that some how covered by kind of competitive confidentiality?

I think the later, we have really not spoken with any specificity about these products, we’ve not talked about filings or PDUFA dates and I think that’s the reason you’ve heard a little in the way of disclosure other than a confirmation of the existence with these products, and I think that’s the way we’ll be until there approval by the FDA.

Okay, so you can, let us know if you would actually how they response yet?

We just don’t comment on the regulatory cycle, but I think we’ve given you reasonable insight as to our expectation of new products launching.

Okay, great and then just for housekeeping on the Ipsen PDUFA date on their BLA filing for the cervical dystonia, do you have that PDUFA date handy?

Well we do, but I think it’s a question better put to Ipsen and what disclosures they’ve made publicly, I’ve not personally conversant with, but certainly as a close partner we are aware of their PDUFA date and there is a, I don’t want to say daily communication, but several times a week communication between the companies.

I just asking maybe Mark with the timing of obviously their response and some way to pay you’re spending on Reloxin and does it give you some kind of roadmap to when you would start maybe ramping up spending.

We’re counting on a first quarter launch and that’s what we’re gearing up or so, I don’t think that would impact. In fact I believe and I’ll turn it back to Jonah, these are two really separate and distinct applications and will be viewed independently. So, I think the outcome of there is really doesn’t dictate the outcome of ours necessarily and we are gearing up to that first quarter launch.

Great, thanks guys.

Sure.

Your next question comes from the line of James Kelly with Goldman Sachs.

My questions has to do with the gross margins and what it meant for mix both in the quarter and going forward in guidance. Given how it’s on the higher end of guidance, what does this imply about ZIANA and the Restylane franchise and how should we think about, how those products might accelerate relative to how they perform in this quarter? Thank you.

James, this is Rick. As we look at gross profit, we have raised our guidance to 92% to 93%. I think that really goes well for our entire franchise products from SOLODYN, ZIANA, Restylane and PERLANE all contributing to that. So, I wouldn’t take any single product out of that, but really look to just a strong nature of products.

Your next question comes from the line of Gregg Gilbert with Merrill Lynch.

I have a couple. Rick, this isn’t a huge dip, but can you comment a little bit on the strong growth year-over-year it's been non-derm line and further any different profitability drivers within that line?

In the non-derm line?

Yes.

The growth there is really on our BUPHENYL and AMMONUL line and again we tend to guide into 12 range, but again that category is highly difficult to predict.

Okay, can you talk a little about receivables trends as well that where up quite a bit sequentially?

I believe the receivables are actually pretty consistent from quarter-to-quarter sequentially.

Then you move on to Mark, you touched on this a bit earlier, what are the Reloxin activities that you do before the action date versus the ones you do after? You alluded to the sales forces interviewing versus hiring that seems to be an obvious one, can you put a little more meat on the bones and some of the other types of activities that contingent upon the PDUFA action versus not.

Gregg, again it’s Jonah. So, I have the pleasure of answering your question. The effort that takes place with ROLOXIN really began quite sometime ago. When we assumed the license of the brand, we began a tandem effort to make sure that the clinical program was one that we could confident about not just to gain FDA approval, but also it haven’t appropriate labeling and marketing platform to be able to sell and then intensely competitive environment, so this really began quite sometime ago. We have conducted market research with hundreds, thousands of physicians to develop. I think reams of information about characteristics of the market, competitive characteristics. So, all those things really took place quite sometime ago and continue to be refreshed just with developments in the market. We’ve had a very aggressive clinical development program involving dozens and dozens of investigators and as I said thousands of patients. We’ve also consulted with some of those investigators to understand their feeling about the products, their scientific characterization of this product and others that they have used and of course on the truly commercial side, our work began alike wise when we acquires the product and that work continues a pace, certainly there is much more of it going on now, we’ve added members of the team and we have full time people here that are working on nothing, but Reloxin and there is certainly a lot of teamwork so, the executive committee and other leadership within the sales and marketing area spends at least a day, a week collectively working on Reloxin and our planned introduction of the product. There are Mata fairs matters that are being scaled up that’s separate and distinct from the commercial operation of course, there is a very significant aspect of the Internet that we are deploying, so that the activity I think is significant and has been for months and we’ll probably reach a pitch in the third and fourth quarter and then of course with the anticipated and hoped for introduction of the brand. The sales force side deployment has already begun, in a sense that Mark alluded to earlier, we have been studying of the geography of territories, the characteristics of customers, of the strengths of our management deciding where to create new territories, we have already begun interviewing both that the management and the sales specialist level, for Reloxin positions we expect to add those positions and have them ready to set a launch, of course there is also a great deal appropriation and the amount of training materials. Things that will get our employees already for a very aggressive launch to have outstanding product knowledge to know the category, our profiling customers. So, we are still Medicis, but there are hallways in our facility that really could be called Reloxin, so there is a lot going on.

One last one, Jonah. On the LipoSonix technology, what you comfortable with saying at this stage in terms of the fat reduction magnitude, I’m not sure if the millimeters or centimeters, what you said, but what are you willing to say at this point? Thanks.

Thank god, it’s centimeters and someday we may speak about inches, which would make an even nicer progression, but we have really said little more than the LipoSonix group has said publicly that there is a several centimeter reduction in abdominal circumference with administration of the transducer just on the abdomen. So, it is a circumferential reduction, but obviously if there were other anatomical sites deployed around the abdomen and the flank, the love handles, one would predict that the circumferential reduction would increase and I think that’s the point where we’re really talking about inches rather than centimeters.

Thanks.

Then of course Gregg, I’d remind you this is a single application that in our experience takes about 45 minutes completely non-invasive with minimal discomfort for patients, where they’re walking away from the procedure and going home and we expect carrying on their normal activities.

(Operator instructions) Your next question comes from the line of Rich Silver with Lehman Brothers.

Just a couple, back on Restylane, you commented on the pricing environment and more from what you seen on the competitive front. Can you talk to what you seen in terms of your own volume, unit volume and whether you seen any impact there?

In a way it’s perfect storm of circumstances and because of that storm, it makes it extremely difficult to understand the effect of one variable in the market or another. I think the macro circumstance and the one that’s most significant is that the economy nationally and globally is under tremendous strength and I think the growth rate that was inherent in the market, which was pretty significant has certainly decelerated because consumers are either not coming into the market newly or consumers that are steady in the market or increasing the time between procedures. So, that’s kind of the big pictures that I think affects all companies and certainly as the market leader affects us most because we would expect to get disproportionate share of new patients coming into the markets, especially with our consumer advertising. So, that’s the big picture and I think that’s hurting everyone. The growth in units for us among our targeted customers, so the (inaudible) that we call is actually increased, so we think that we are taking a very good care of the high volume accounts that really make up the cornerstone of our sales and marketing efforts, but our governments in the market, which are probably contracted that that were otherwise purchasing Restylane Syringes and presumably, we’re purchasing other products as well. So, it is more competitive, we have several very worthy and competent competitors with product to sell at various prices. It’s kind of becoming one of those markets that goes from odd lots, all the way up to Nordstrom, which was where we see ourselves and there is a syringe at every price in the market and particularly with the promotions and the specials, there is a lot of the odd lot kinds of trading going on, but we have confidence that patients fundamentally understand the value of this products. That there is nothing else they can do some meaningfully improve their appearance and really take off some time from their visual appearance, their are face and as the market rebounds and your guess is to when that happens is as good as ours, maybe better, that the pent-up demand in this market will come swirling back in and that we will benefit disproportionately from that demand.

Just back to the question about the gross margin and mix shift. So, the other side of this could we assume is that in the quarter and maybe going forward that Restylane’s contribution is lower and therefore that is also had a positive impact on the gross margin?

I wouldn’t say that was the case. I think as we outlined in the press release and in our SEC filings. Really the strength of SOLODYN contributes primarily to the gross margin increase, but we reduce the contribution from a wide variety of products across our line.

Okay and then last question just make sure I heard correctly on the SOLODYN forums that you expect to be approved and launched this year, you said it was different dosage strength and a different form. Is that correct? So there is two products that we should we should expect to be approved and launched this year that’s included in the guidance?

No, I think we said different presentations of forms of SOLODYN and I think that as much specificity we care to offer at this time. The next update would hopefully be on launch of those products.

Okay, thanks very much.

Sure.

Your next question comes from the line of Gary Nachman with Leerink Swann.

Hi, Jonah. Just sticking with SOLODYN for a sec, are you seeing anymore pressure from formularies, are X growth it’s lined a little bit sequentially and then when you guys launch the new form of SOLODYN. How do think formularies will handle those new products?

Yes, actually growth seems to be up. I think we’re very please with the way SOLODYN is doing this quarter and note that ZIANA has also had a nice up tick. We are in a sort of constant relationship with manage healthcare providers so, before launching a product we would obviously be in communication with them to try to educate them to product benefits and features that we think are important. There is no question that Managed Health Organizations are always interest in reducing the cost of the pharmaceutical benefit that they offer their members or their patient. So, there is always price pressure across every product and it’s a question of how that pressure is managed. They deal addition with this in lots of different ways, but most importantly in the tearing of products trying to create disincentives for the patients to take a particular product because a co-payment would be higher for that product and either for a therapeutic choice that the plan thinks is appropriate or for a generic product. So, there’s no question that there’s a very complex economic relationship that really has three parties to it, the pharmaceutical company that is selling to wholesalers and chain drug stores. The pharmacy of course, which has a profit center and some products more than others and then obviously the fiscal intermediary that either managing on an indemnity basis or in a prepaid basis, the prescription benefits for the consumer, and then you can layer on top of that the consumer himself or herself, they obviously have a big role to play, because they’re responsible for the co payment and they have to insist sometimes on one choice or another and then to complicate it further a lot of prescription benefit management that occurs is really on a self insured basis for corporation that are large employers. So, there is another tear of consideration because many large corporations actually work to design the prescription benefits and availability of products for their employees and the prescription benefit manager is simply the intermediary between their decision and what happens to their employees when they go to the pharmacy. So there is a lot of complexity to this, we consider ourselves very skilled, and very confident as on organization at managing all of these elements as well as coordinating the management of these elements with our important value trade customers.

And from a commercial standpoint, is the strategy to rapidly convert the existing prescriptions over to the new forms, or is that expected to be more incremental, and are you planning on increasing the size of that therapeutic sales force for this launch?

We are not planning to increase the size of therapeutic sales force. So we consider them to be a more adequate after the purpose as they have been to the introduction of selling on and it’s our job to provide product to the market that provides our healthcare benefit for patients, and its obviously up to dermatologists prescribing the products to determine which product or products are best suited to the healthcare needs of those patients, and I would never imagine that a dermatologist would make a prescribing decision on any other basis.

Okay, and last one just on the fillers, have you seen more of a pick up in the plastic surgeons offices as there is a shift away from the higher ticket items in this tough economy, and do you feel you’ve historically been very strong with the derms and you’re doing well with the plastic surgeons, but do you think you are positioned well enough with that group? Thanks.

We think we’re positioned very well with all of the major segments of the aesthetics market. It’s clear that our heritage of the foundation of the company is in dermatology, it’s an important component of our business, it’s a very loyal constituency of the company with whom we I have extremely close and collaborative relationships with the benefit of patients, but I would not in anyway understate the strong relationships that we have developed within plastic surgery. With the leadership of plastic surgery institutionally and with the rank and file plastic surgeons all over the United States, so while other companies may have more of a relationship in the sense of they were selling more products. I don’t think that they have a better relationship qualitatively. I don’t think there is a company that has a better relationship qualitatively with all segments of this market at least certainly, the major providers within those markets other than Medicis does, and in the aesthetics category, we certainly pay as much attention to non-dermatologists, or plastic surgeons, ocular plastic surgeons and facial plastic surgeons as we due dermatologists the relationships are really defined on the basis of the need for information and training, and obviously we pay the most attention to our largest customers. That’s been something that we’ve identified as been critical to our success from our earliest commercial days in 1990, and we are really indifferent to whether those largest customers or plastic surgeons or dermatologists, we want to serve them all with the equal capacity.

Have you seen any pick up in that group, in the plastic surgeons?

I wouldn’t say so. I think busy offices in the filler and toxin category remained relatively busy although regionally some of them have had declines in revenue. I think the more margin areas of interest of those practices that are less established, and then some of the down market to locations have really taking it on the chin, and then there is a certain geographic sensitivity to this, but there is a lot practices that were down, I think there were a few that were up, and most are kind of in the same place.

Okay. Thanks.

Sure.

Your next question comes from the line of Ken Trbovich with RBC Capital Markets.

Thanks for taking the question. Jonah I was open to circle back on ZIANA. I know you just commented about the what your thought was relative strength, but year-over-year scripts are down 16%, I am wondering if we need to perhaps rethink the longer term on whether this product has the ability to reach the kind of potential of do lack and some of the competitor competitors in this category?

We certainly hope, so Ken we’re working toward that end and I think our sales organization has a very clear understanding of our expectations for ZIANA. I think the trends over the last several weeks have been positive, that represents a bit of change of direction for us and we feel very good about the prospects of ZIANA serving an important place in this market. I think we can do a better job selling ZIANA and I’ve said this at several investor conferences, I have certainly said it to our sales organization. It’s a competitive market we have very good competitors selling good products, but we think there is an absolute unique and large place for ZIANA in this marketplace.

And then just as a follow up on Reloxin is there any reason to expect particular language around these issues of off label using elasticity to appear in the label for Reloxin, or it would be subject have an advisory panel meeting, assume later in the year?

I don’t know it would be really, my speculation wouldn’t to be terribly informed anyway. I think that the label on the safety element of Reloxin is likely to reflect class characteristics. So I think if there are concerns or warnings in this area. They will likely to be imposed upon every manufacture of Botulinum whether it’s type A or type B products and it always good to remember Ken that the doses that have been used for many of these movement disorders were will, I think the adverse events have been particularly noteworthy although rare. The dosing has been extraordinarily high relative to the dosing that is commonly used in his aesthetics. So, what may happen on the neurologic or clinical side may or may not be different from what happens on the anesthetic side and I again I think to the extent that there is concern in this area and I wouldn’t care to characterize what FDA’s level of concern is. These would be concerns that would be a relevant to all products and obviously because DYSPORT has not been on the market in the United States. The adverse events with Botulinum type A toxins have been exclusively with Botox. So I am sure they would be a very concerned with Botox in this area and of course there has been a Botulinum Type B toxin across product called Myobloc. So the experience in the United States is obviously limited to those two products the European and world experience certainly includes DYSPORT.

And then just as it relates to the filler business are we through with the stocking orders that you had for Reloxin and PERLANE that have accounted for these differences and reporting between Q-Med 38% reduction in shipments to you and obviously what you are reported to be a reasonably decent quarter on the filler side?

Ken we’ve often talked about the dangers in comparing our purchases and the way we hold our inventory of Restylane and Q-Med sales versus that of ours. The timing differences, I think we will maintain an appropriate level of Restylane in our warehouses, in order to ship based on demand and I think Ric and the manufacturing group do a great job and taking in what needed. So, I would hate to give you a prediction going forward, but I think you can see from the last three quarters, a delivered attempt to bring down our inventory levels and how much we’re carrying quarter-to-quarter and for those out there who the inventories levels that we’re talking about right now are the inventory that Medicis hold of it’s own products in order shift two wholesalers and we made a conscious effort to reduce those levels over the three or four quarters.

And you know strangely they are sometime extraneous events because of my own neurotic nature that influence the amount of inventory that we hold. I think if there is just comfort with the integrity of the shipping lanes for examples, because of world events that would be very concerning. It would be our job I think as contingent and prudent fiduciaries our shareholders and our customers to make sure that we have inventories on hand and in stock that could really insulate us from any disruption in product. Now obviously Sweden as an extraordinarily stable country, so we’re not worried about what happens there, but there have been time in our stored ship of this brand where world conditions have suggested genuine threats to shipping lanes. The ability to get products produced outside of the United States into the United States. Things like the SARS epidemic and the bird flu epidemic have likewise influenced some of our inventory decisions because again acting a bit neurotically, but very prudently. We have been concerned that at certain points in time the boarders to the United States to commerce might be slowed or closed entirely based on certain world events. So we’re looking at a lot of different factors when we make inventory decisions particularly for those products that are brought in from countries other than the United States and I think you can really consider the world events that have occurred over the last 4.5 years between health concerns and international hostilities to imagine that we’ve been appropriately prudent at certain junctures in time.

Your next question comes from the line of Dave Windley with Jefferies & Company.

Hi, thanks for taking the questions. On the non-derm line has there have been a change in revenue recognition there since the Hyperion deal or perhaps triggered by the Hyperion deal in last August?

There is not been any change in revenue recognition in that category.

So the kind of the run rate the last several quarters there have been stronger than four quarter, if I look at trailing four quarter periods going backwards. I know you said that those are highly difficult to predict any particular driver you could provide, inside on why that’s sustainably moving higher?

The few quarters are higher before that it was down a little lower. So, again I think it just moves to the variability in that category. We’re seeing growth in the brand absolutely and so that contributes to it as well, but again it’s unpredictable category for us.

And is that a positive contributor to profit mix, or is that an offset to your improvement in profit mix?

It is a positive contributor to our mix.

Okay on the LipoSonix’s technology there is discussion on abdomen. Jonah is that the primary targeted area of the body or will you seek a general approval that would allow some marketing of the technology to be used in it’s multiple areas of the body?

David we are going let Joe Cooper answer that as he is most familiar in this area.

Hi this is Joe Cooper. The data that’s been publicly discussed today focuses around abdominal treatment in reduction, which isn’t either tip off at an overall regulatory strategy or limitations on the technology. So, were we continue to very impressed with expandability of the technology, given that there is a lot of anatomical targets and potential for the product.

And would you expect that each target would require its own approval?

Well we wouldn’t say today what that would be. In part of it is we’re just not going to sit here and front run FDA on something. We’re in active discussion with them. It’s not a blank sheet of paper, but we’re in a position to say anything about that today.

Okay and on the safety side have you received any feedback from physicians around expressing concern regarding the lack of renewal of the emulsified fat subsequent to the procedure?

None.

None at all, okay…

It’s a question people ask but it’s easily answerable both in literature as well as in date from the product so…

And would it be fair to assume that the question came up earlier about the magnitude of reduction that kind of magnitude of reduction and potential safety issues would be kind of inversely correlated, because the amount of debris remaining?

No, if your question is, is there a correlation between those in other words, if I heard you correctly greater degree of efficacy is measured by circumferencial reduction versus higher incidents of AEs.

Something to that affect, yes because you’re leaving more debris.

Because of a larger amount of the emulsified fat no. No signals in that regard.

Okay, and then finally around SOLODYN, would you guys be willing to comment on any changes if any in your couponing on SOLODYN and, are you anticipating eventually, I don’t know how soon, but eventually that there will be some type of restrictive response by Managed Care to the couponing activities?

Yes, I don’t think we cared to comment on our activity promotionally or that help actions patients to offset their co-pay and likewise, I don’t think we want to speculate on our responses of Managed Care, I think it’s our job to maintain a good and collaborative relationships with Managed Care Organization, the major health plans. We have a very able team of people that are in a near constant communication, so it’s our machine I think to be aligned with Managed Healthcare Organizations to make sure that their patients have accessed to the best possible medications in each class of therapy and we believe in the acting category, that SOLODYN is an excellent choice in that regard.

Okay, thank you.

Your next question comes from the line of Lei Huang with Summer Street.

Hi, thanks. In the quarter were there any material changes in inventory levels for either SOLODYN or ZIANA?

Are you speaking about our inventory levels or our wholesaler inventory levels?

Sorry, wholesaler inventory level.

There is no substantial diverts in the inventory levels, and as far as in booking revenue, we book revenue on-demand, or prescriptions based, so inventory levels that the wholesalers wouldn’t necessarily dictate our revenue and as of this last quarter, we do have inventory management agreements in place with all of our large wholesalers and our inventory levels are governed by those contracts.

Okay, and then just on SOLODYN as far as the whatever new formulation that you launch later this year, did you say that there would be new recognition of whatever the stocking is, you would just recognize the revenues as the pull through recognize?

Yes, that is what we do we book revenue based on prescription levels and demand for the product, so the stocking which of course we want to accomplish to achieve distribution of products down to the retail level would really not reflect itself on the revenue side until prescriptions are written and pull through.

Okay, and also staying with the line extension for SOLODYN, is it there if you seen that approval of the new formulation there will be no regulatory exclusivity would just be whatever patent perfection, or whatever patents are issued?

I think we’ll see when we get there.

Okay. So it’s possible that you may have exclusivity on some of them?

Well, regulatory exclusivity no.

Okay.

We will not be the largest not provide for that at the current time. Whether there are other elements of exclusivity that relate to intellectual property, we are of the strong belief that a patent to that has issued and many more that are pending that will in fact provide meaningful protection for SOLODYN, given both present and future forms.

Okay and then just another question on the SOLODYN line extension. Can you disclose whatever we should be assuming a six months or ten months review for any new formulation?

It really depends on what formulations there are, some are considered supplements, others would require full clinical review, so it really depends but I think the requirements of each are fairly well known and I don’t think we’d want to comment about any specific product of ours in that regard.

Okay, so you don’t want to say for SOLODYN whether it would be six months or ten months?

No, because in essence, we’d be conveying information to you by answering that question that we would not otherwise wish to convey.

Okay.

I think what I’ve said is that we have various forms of SOLODYN that we expect to introduce on a we hope regular basis over at least the next five years and beyond that we think very advanced forms are underdevelopment here that would in essence offer a new franchise if successful, and if approved by the FDA in this category.

Okay. Fair enough, and then just last question, as far as LipoSonix Technology, at what point do you think you will be providing some visibility to the Street on the clinical and regulatory pathway forward? I mean is that something we can expect in the next eight, twelve months are so?

I think we will have the appropriate time comment on our expectation of approval of the product beyond what we have already said, what we said now is that we expect full approval in the United States at 2011 or before and we will update that I think when we have lot of new information to be extent that we feel comfortable.

Okay. Thanks.

Sure.

And our last question comes from Gregg Gilbert with Merrill Lynch.

One last two part follow-up. First is there been any dialogue with the government on potential Hatch-Waxman’s protection for ZIANA, and secondly, Jonah can you offer any commentary on whether you’re spending any R&D dollars in the breast aesthetics area one way or another, and how important is that area, that market strategically diminishes long-term? Thanks.

We have not yet had a response to a citizen’s petition that we filed with the FDA not relating to SOLODYN and bio-pharmaceutics issues, but rather to our belief that ZIANA is entitled to certain orange book listing and other protections under the Waxman Hatch Act. So, no response yet, we are hopeful that the government will carefully consider it’s position and when we receive it will consider what other remedies exist for the company, we think that we have a good legal foundation for our position and will obviously consider our options when we get a response from the agency. In terms of whether we are spending money in the breast aesthetics area, surprises to say that we are very familiar with this category, we obviously were on a forced marched familiarity as we considered our acquisition of InterMed some years ago. Of course, that acquisition did not go through, but there was a certain amount of work and knowledge that was accumulated here at Medicis and we continue to apprize ourselves of development in that market, that to the extent that it may at some point in the future be interesting, at the very least it allows us I think to keep current on activities undertaken by our competitors in the aesthetics category to look for opportunities for us one appropriate, obviously under some circumstances it’s an interesting market.

Thank you.

We do apologize, but we only have time for a limited number of questions, if you would like to ask your questions, but did not have the opportunity, please contact the Medicis Investors relationship department directly. Mr. Shacknai, I would now like to turn the call over to you for any closing remarks.

Thanks, we very much appreciate the interest of the questions and thoughtfulness of the questions this afternoon, we let this go a bit longer so that all analyst would have an opportunity to ask questions multiply in some cases and we of course would expect our phones to be ringing from shareholders and analysts who have additional questions of management, we standby for that and again offer great thanks for your interest in our company. Good day.

And that concludes today’s teleconference. You may now disconnect.