Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Rich Silver with Lehman Brothers. Please proceed.
Rich Silver - Lehman Brothers
Yes, can you give us a better sense, when you look at the many variables that contributed to the shortfall, particularly both on revenues and on the expense side, just putting a little bit more meat around this as far as the magnitude of which one or ones might have represented the lion share of the shortfall?
And then secondly, if you’re looking at the base business and the erosion that – price erosion that you experienced, how much of that is a factor of, just not having new introductions perhaps as a way of stabilizing the base business, essentially the pipeline acting as a stabilizer in terms of the customer base?
And the third question, just on Megace ES, still trying to get a better sense of why we shouldn’t continue to see pressures on Megace ES and what is your outlook in terms of revenue contribution going forward?
Veronica Lubatkin
I guess starting with Megace ES, we do expect growth in the second half. We took a price increase in July of 2008, and the growth will be driven by that price increase, and right now, we are projecting stable PRX volumes for the products.
Rich Silver - Lehman Brothers
What was the price increase on that?
Veronica Lubatkin
12%.
Rick LePore
12%
Rich Silver - Lehman Brothers
Okay.
Veronica Lubatkin
So, we’re unable to predict what will happen in the reimbursement landscape, and we are impacted by changes in status that occurred in the first half. But despite that, the volumes have remained stable. In terms of the erosion that occurred in Q2, there were certain one-time events that occurred, including the sell off of excess inventory from discontinued product inventories that were at reduced margin that is we don’t expect to recur.
There were certain shelf stock adjustments that were given related to price changes that occurred in the quarter. There was also some shift in customer mix as we lost units with higher price customers and gained in lower margin customers. And then in addition, there was erosion against the base business, including, in some cases, meeting pricing pressures in anticipation of lower costs that we expect in the future as a result of new sourcing actions that we’ve taken, both internal and externally at the I port.
- To read the full transcript on Seeking Alpha, click here »
