Feb 24, 2009
Executives
Laurie Little - Vice President, Investor Relations J. Michael Pearson - Chairman and Chief Executive Officer Peter J.
Blott - Executive Vice President and Chief Financial Officer Rajiv De Silva - Chief Operating Officer, Specialty Pharmaceuticals
Analysts
Gregg Gilbert - Bank of America-Merrill Lynch Gene Mack - Lazard Capital Markets Jonathan Aschoff - Brean Murray Michael Tong - Wachovia Securities James Dawson - Buckingham Research
Operator
Good morning. My name is Christine and I will be your conference operator today.
At this time, I would like to welcome everyone to the Valeant Pharmaceuticals Fourth Quarter and Year End Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question and answer session. (Operator Instructions) Thank you Ms.
Little, you may being your call.
Laurie Little
Thank you, Christine. Good morning or afternoon everyone, and welcome to Valeant's 2008 fourth quarter and year end financial results conference call.
Joining us on the call today are; Mike Pearson, Chairman and Chief Executive Officer, and Peter Blott, Chief Financial Officer. In addition, Rajiv De Silva, Chief Operating Officer, Specialty Pharmaceuticals, is with us and available for questions.
Before we begin, I'd like to call your attention to the fact that this conference call may contain forward-looking statements, including but not limited to, expectations and plans relating to Retigabine and Taribavirin, cost reductions, sales growth, and other aspects of our restructuring growth strategy, the effect of financial markets and foreign exchange impact, and the benefits of these efforts we expect to see in 2009. These statements are based on current expectations and beliefs of management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
These risks and uncertainties include but are not limited to, risks and uncertainties related to our ability to carry out our restructuring program, our relationships with our existing and future partners, and our ability to manage exposure to changes in foreign exchange rates and other risks and uncertainties discussed in the company's filings with the SEC. These risks are among the factors that could cause actual results to differ materially from the expectations described in the forward-looking statements and undue reliance should not be placed on any of these forward-looking statements.
Valeant undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this call or to reflect actual outcome. Certain figures discussed in today's presentation will be based on adjusted or non-GAAP information.
A reconciliation of historical GAAP to non-GAAP results can be found in tables to the company's press release issued earlier today and on Valeant's website at www.valeant.com. And now, I'd like to turn the call over to Mike.
J. Michael Pearson
Thank you, Laurie. Good morning everyone and thank you for joining us.
2008 was a year of significant change for Valeant. We divested underperforming assets and replaced them with assets that will provide better margins and improved opportunities for long-term growth.
We set about restructuring both of our business operations and our corporate culture into a lean cost effective decentralized organization. We partnered our most important pipeline asset with GSK and replenished our pipeline through the Dow acquisition.
Finally, we transformed our balance sheet through debt redemption and share repurchases in order to deliver value to our shareholders. While we are pleased with our accomplishments in 2008, I believe that we are only halfway through our overall restructuring efforts.
However in 2009, we will be as focused on growing our businesses as we are on cost reduction. The fourth quarter also marked an important turning point for Valeant.
In almost every segment, we delivered solid growth over the previous year at constant exchange rates, while at the same time making progress towards reining in our cost structure. Total product sales grew 8% year-over-year, once the currency impact and the sales from divested businesses are amended.
Our Canadian operations delivered 18% growth, Australia delivered 15% growth. Our branded generic businesses in Europe grew over 12% on a constant currency basis.
In the U.S., we came close to a 10% growth in our operations suggesting that the hard decisions made during 2008 are starting to take effect. All this contributed to a solid cash EPS number of $0.52 for the fourth quarter.
With our six initiatives from last year essentially completed, we have a new set of initiatives established for 2009 against which we will be measured both internally and externally. First; maximizing the GSK alliance and filing the Retigabine NDA.
Our first initiative is to maximize our alliance with Glaxo on Retigabine and file the NDA. This partnership is very important to both Valeant and GSK and we're diligently working together to design a full lifecycle management program to maximize its potential.
GSK is now had a chance to review the entire file and identified several areas for strengthening the electronic common technical document or ECTD, especially around data structure and formatting to meet evolving FDA review requirements. Additionally, GSK is optimizing the current manufacturing process to facilitate Retigabine's future commercialization.
In total, these changes will move out the NDA submission date beyond the first quarter of 2009. With Glaxo's valuable input and expertise, we believe the NDA submission will be considerably enhanced for a robust and high quality filling.
I am disappointed that we will be submitting the dossier later than initially anticipated but I would like to emphasize that there are no missing tests and no issues that we believe will delay the filling significantly. I am pleased to announce that Glaxo has reduced $100 million call back (ph) to $40 million over a year ahead of schedule.
This I believe, is a strong signal of their commitment to the product. As part of this agreement, we have made the decision to give Glaxo final say over submission timing.
I completely agree with their philosophy. What counts is not when the NDA is submitted, it is when it is approved.
Both companies are working hard at getting a perfect submission complete and we're both committed to the 2009 timeframe. However, in the end, GSK will determine the final submission date.
In the interim, both companies continue to move forward on the MAA formulation. We believe that that this will maximize the success for Retigabine overall as either a, once-a-day or twice-a-day compound, that should offer for better patient compliance and potentially an improved side-effect profile.
We hope to have more information regarding our MAA program later in the year. We also have a phase II neuropathic pain study that has completed enrollment and we anticipate having more information available in mid 2009.
Our second initiative is to replace our at-risk products, Diastat and Cesamet. In 2007, Efudex was selling its largest product and in May of 2008, it began to face sneer competition.
Unfortunately, the company had not taken steps to replace this important past generator. We will work hard to ensure this scenario does not repeat itself for either Diastat or Cesamet, two other significant products which will likely encounter generic competition over the next few years.
Due to a previous legal agreement, Diastat will be facing another generic entrance in September 2010, we would like to have a replacement strategy well before this event occurs. As we did in our dermatology franchise after Efudex went generic, we're working hard to identify neurology products and or companies that would represent an attractive acquisition opportunity or offer in licensing candidates for Valeant.
Our Canadian team has also done well in growing our Cesamet business. And although there is not a generic player on the immediate horizon, we are working on broadening our product portfolio in Canada, if and when such an event takes place.
Our third initiative for 2009 is to deliver on our recent dermatology acquisitions, CORIA, Dow, and DermaTech. We are very excited about the new additions to our dermatology business; two companies in the U.S.
and a small company in Australia and integration is essentially complete for both CORIA and DermaTech. When we acquired these businesses, we developed pro forma financial projections which were used to justify the deals.
For our third initiative for 2009, we are committed to delivering on these internal forecasts and making these acquisitions accretive to Valeant's bottom-line in 2009. For the first six weeks of 2009, we are tracking ahead of our pro forma projections for all of our 2008 acquisitions.
We are also looking forward to the upcoming launch of Acanya. We have already begun shipping to wholesalers and distributors and plan for the official launch to take place on March 5, preceding the American Academy of Dermatology or AAD Meeting in San Francisco.
We are eagerly anticipating the introduction of this product which has already been discussed at several medical conferences this year as a product with distinct advantages over the current therapies including d-ach and benzoyl clin (ph). Our fourth initiative, show significant progress towards building two branded generic businesses of $500 million each in Europe and Latin America.
Our fourth initiative is to make significant progress towards growing these two businesses. These are businesses that were largely under invested and not a part of our previous strategy.
We will grow these businesses through first; aggressively securing dossiers and registrations and significantly increasing the rate at which we launch new products. Second' entering contiguous geographic markets for example Romania and Bulgaria, and third; making small bolt-on acquisitions.
We believe both businesses are attractive opportunities for growth for us and potentially overtime to other pharmaceutical companies. Fifth, to partner our pipeline assets, including taribavirin as appropriate.
But this initiative is continue to partner our pipeline products and to the extent we cannot find partners to kill these pipeline projects early in their development. Our best known unpartnered pipeline asset is taribavirin.
We've shared our 48-week End-of-Treatment data that continued to show comparable efficacy to ribavirin with statistically significant lower anemia. We now have both 52-week and 60-week data in hand and both sets of data continued to show comparable efficacy and statistically significant lower anemia.
We will be presenting this data this spring at Easel (ph) in Copenhagen. We look forward to the final development milestone 72-week data also this spring.
We are continuing to partner discussions on these compounds since we are not going to proceed on an expensive Phase III on our own. We are also beginning to enter into partnership discussions on our newly acquired dermatology pipeline.
Given our reduced geographic footprint, we will be looking for development partners with an interest in commercializing these products in markets we no longer operate in. Finally, we have made the decision to discontinue our Diastat nasal spray program given the required future development cost, but likely time to market and lack of interest by potential partners.
Six; continue to strengthen our balance sheet. Finally, we're going to continue to reduce our debt and buy shares where appropriate.
We have convertible debt coming due in 2010 and we are preparing for the event in all of our financial plan exercises. In 2008 even in the midst of our restructuring efforts we still manage to generate approximately $100 million in cash flow from operations during the year.
We expect this to only improve in 2009 as we benefit from our cost reduction initiatives. That said we will be conservative with our balance sheet activities.
These are our six new strategic initiatives. We've also provided some financial guidance of cash EPS of $1.35 to $1.60 for 2009.
Despite the continued deterioration of foreign exchange rates in all of our operations outside the U.S. we continue to standby our guidance for 2009.
Despite what we believe was a very good 2008 both I and our top management team of Valeant has agreed to no salary increases in 2009 to reflect the current economic climate. In addition, to demonstrate our commitment to meeting our guidance no-one in the senior team will get a bonus for 2009 if we don't hit at least $1.35 a share.
Now, let me turn the call over Peter Blott to discuss our financial performance in more detail.
Peter J. Blott
Thank you, Mike. I'm pleased to report our 2008 earnings slightly ahead of the top of the guidance we gave last time.
Full year 2008 cash EPS was $0.81 compared with the guidance of $0.60 to $0.80. There is been a lot of change in Valeant over the past year which makes comparison to prior quarters difficult although I believe this is getting easier.
I will talk about a number of these factors in a minute, but let me start with the top line. Products sales decreased 6% from the same quarter last year on a reported basis, but this comparison includes significant, adverse currency effects and the impact of operations which were divested in the first half of 2008 as well as acquisitions made in the fourth quarter of 2008.
Excluding these transactions and the currency impact, our like-for-like product sales grew 3%. On a sequential basis product sales continued to grow on a quarterly basis as our new strategy has take hold.
Product sales in the first quarter of 2008 came in at 139 million, the second quarter was 139 million and the third quarter product sales was $153 million. This compares to product sales of 162 million in the fourth quarter, a trend that we're hoping to continue to same.
As, I mentioned on our last call, we've changed our segment reporting to better reflect how our business has ramp. The Specialty Pharmaceutical segment reflects our business in the U.S., Canada, and Australia.
On a reported basis our Specialty Pharmaceutical operations declined 3%, but after adjusting for the impact of currency, divested businesses and the products acquired in the Coria and DermaTech acquisitions are like-for-like business reflected the small growth, in the Specialty Pharmaceutical segment. Our Branded Generic business in both Latin America and Europe were also both negatively impacted by currency changes.
While our product sales in Latin America decreased 17% on a reported basis, once exchange rate impact is factored out, our Latin American operations were essentially flat with the prior year fourth quarter with growth in Mexico offset by decline in Brazil. I probably do not need to remind you that this represents a significant improvement for our Mexican operations.
We saw 2009 net with low wholesaler levels and are well positioned to continue our solid progress towards growth and profitability in the coming quarters despite the difficult economic situation in Mexico. European operations were also impacted by over $4 million due to foreign exchange, but the actual business grew by 12% on a constant currency basis.
This quarter marked the first period of the collaboration with GSK on Retigabine. We have provided details in our press tables of the accounting treatment in the fourth quarter.
In summary we placed $125 million upfront payments from GSK on our balance sheet. And we'll draw this down against operating expenses on the collaboration and a Alliance revenue over the period of our participatory obligations under the collaboration.
In the fourth quarter the release against operating expenses was sufficient to offset the $10.7 of cost, we incurred on the Retigabine collaboration work. So shall we recognized a net zero as R&D and SG&A expense in our P&L in this area.
We've recognized $4.4 million as Alliance revenue in the quarter. Ribavirin royalty was broadly flat at $16 million in the quarter.
Cost of goods sold as percentage of products sales remained at 26% for the fourth quarter. We have also made some changes as to how we will be reporting our operating expenses going forward.
We are now consolidating our sales and marketing and our general and administrative expense back into one line item, consistent with industry norms. For the fourth quarter our SG&A expenses decreased 7% due to currency fluctuations and our ongoing cost reduction efforts.
I will now turn to our three acquisitions in the quarter: Coria, DermaTech and Dow. As part of the purchase accounting for these transactions in the fourth quarter, the company reported purchased in process research and development charges IPR&D of $186.3 million, related almost exclusively to Dow.
Our intangible assets increased by $268 million as a result of purchased accounting in the quarter; including a Kenya product rights of $102 million, Dow royalty streams of $74 million, Coria products of $75 million and the DermaTech product rights of $8 million. Goodwill on the Coria transaction has accessed us $43 million.
Purchased accounting for Dow yielded negative goodwill of $96 million, which under FAS 144 will be held as conditional purchase consideration on our balance sheet pending future payments of developing milestones as deferred consideration. We also recorded restructuring charges of $17 million in the fourth quarter comprised principally of $7 million of contract cancellation charges, $7 million of employee severance costs and $2.4 million of asset impairments.
Now, turning to taxation. Even though we recognized a GAAP loss including the IPR&D charges we recorded a fourth quarter tax provision of $6 million.
This is driven by the -- essentially by the non-deductibility of the IPR&D for tax purposes. We continue to maintain evaluation allowance against our NOL.
I would now like to say a few words about cash earnings per share. As we mentioned previously we believe it is no longer relevant to provide guidance on a GAAP EPS basis.
Because we will continue to be both the buyer and the seller in the future GAAP EPS will include constant adjustments in our purchase accounting to take into consideration items such as amortization and IPR&D charges, which ends up distorting our true performance. We believe that cash EPS is the best measure of our performance and we'll be measuring ourselves internally against the cash EPS goal.
Our calculations of cash EPS, exclude the tax effected amount of amortization, IPR&D, gain or loss on extinguishment of debt, restructuring and for 2009, the new non-cash interest on the convertible debt related to APB 14. Our effective tax rate used in a calculation of cash EPS in 2008 is 36%, in the U.S.
federal tax rate plus an incremental -- increment for state taxation. Full year 2008 cash EPS was $0.81, compared to the guidance of 0.60 to $0.80.
Cash EPS in the fourth quarter was $0.52. Our target for 2009 cash EPS remains as previously stated of between $1.35 and $1.60 per share in 2009.
Cash and marketable securities was $219 million at the end of the year. During the fourth quarter, we paid out $251 million for the acquisition of Dow, which closed on 31 December 2008, as well as 95 million for CORIA and 14 million for DermaTech.
Cash flow from operating activities in continuing operations was $207 million in 2008 including $148 million in the fourth quarter. This included $110 million related to the GSK collaboration being the upfront payment of $125 million net of our other cash flow impacts from the collaboration on Retigabine in the quarter.
This reflects ... this cash flow performance reflects the strength of our continuing cash generation capability of our business even in a period of transition like 2008.
Turning now to our securities buyback programs. In November 2008, we completed our $300 million share repurchase program that started in 2007 at an average purchase price of $17.01.
We announced in November securities buyback program of a further 200 million. To date, we've purchased approximately 300,000 shares of our equity for $6.1 million and $33 million face value or $29 million cash value of our 3% convertible debt under this program.
Currency movements continues to have a very significant impact upon our business. Our key exposures are to the Polish zloty and the Mexican peso, which have dropped 55% and 34% respectively from January 1, 2008, to date.
This was a direct impact on our reported top-line sales. The bottom-line impact however is mitigated because of significant proportion of costs are also denominated in local currency.
We manage these businesses in local currency and will be concentrating on growing those entities from a constant currency basis. In the third quarter earnings call, I indicated that exchange rates stage where they were then, the impact upon our earnings from movement in these two currencies could be expected to be in the order of $5 million to $10 million in 2009.
The exchange rates have decreased further since then. I would now assess the overall impact on our earnings in 2009 to be $15 million to $20 million equivalent to $0.18 to $0.24 of cash EPS.
We will continue to provide you with our performance on a constant exchange rate basis so you'll see the underlying strength and growth of our business. Now I'll turn the call back to Mike for closing remarks.
J. Michael Pearson
Thank you, Peter. We've accomplished a great deal in our first year.
I believe 2009 will begin to demonstrate that last year's strategic initiatives will translate into solid future financials and that this year's strategic initiatives will position us for even more exciting future in 2010 and beyond. Thank you for your attention today.
We will now take any questions that you have. Operator, may we have the first question please.
Operator
(Operator Instructions). Our first question comes from Gregg Gilbert with Bank of America and Merrill Lynch.
Your line is open.
Gregg Gilbert - Bank of America-Merrill Lynch
Thank you. Good morning guys.
Peter, so that we can focus on your operating metrics more clearly, can you walk us through how the Retigabine arrangement with flow through Alliance revenues as well as SG&A and R&D in '09 so we can peel back those effects?
Peter Blott
Okay. Gregg, essentially as I've said, we put the $125 million of upfront payments on our balance sheet and then released that as we complete our participatory obligations essentially over the next year or a couple of years.
That would get released as the credit would go either against our operating expenses to the extent that we are spending money less than that $125 million on R&D. And that was capped at $100 million maximum although we anticipate spending less than that.
The difference between the amounts that we forecast spending on the R&D collaboration, on Retigabine and the 125 million will be released to Alliance revenue. That was $4.4 million in the quarter and essentially will depend upon our forecast of how much our share of the collaboration expenses will be less than the 125 million.
Gregg Gilbert - Bank of America-Merrill Lynch
Can you tell us what's baked in your cash EPS goal in terms of benefit from the Retigabine deal?
Peter Blott
We're not giving detailed guidance on individual lines within our pay, including that Alliance revenue line. But I think it's a very good approximation to say that the estimates require you to predict the fourth quarter of 2008 has the same accounting treatment as the quarters in 2009 would have, so that would be the best starting point for the amounts going forward.
So, essentially 4.4 million in a year, 4.4 million a quarter will continue throughout the year.
Gregg Gilbert - Bank of America-Merrill Lynch
But then isn't that positive?
Peter Blott
That would be as Alliance revenue.
Gregg Gilbert - Bank of America-Merrill Lynch
Correct.
Peter Blott
And then essentially predicting a zero when the R&D expense on the SG&A expenses in that I can say Retigabine collaboration.
Gregg Gilbert - Bank of America-Merrill Lynch
So on the last call I believe you indicated your guidance included a $50 million R&D spent. Can tell us what that is now and how much of that is R&D that is not involved with the Retigabine arrangement?
In other word, what sort of the real ongoing R&D especially in light of your decision to kill Diastat nasal spray?
Peter Blott
So, essentially we said $50 million of R&D, and we continue to stand behind that. That essentially assumes a zero for the Retigabine GSK collaboration.
And cash R&D expenses will be greater than that with the P&L charge for the Retigabine would essentially be a zero in that prediction. And therefore the ...
it's and all the non Retigabine spend that we're predicting to be $50 million. And that does include the development programs that we're quite excited about from the acquisition of Dow.
Gregg Gilbert - Bank of America-Merrill Lynch
So, that number doesn't change with Diastat as out.
J. Michael Pearson
That's correct.
Gregg Gilbert - Bank of America-Merrill Lynch
Okay.
J. Michael Pearson
So, we have ... we announced I think four programs that we're doing as part of the Dow acquisition there's actually more than four programs there.
Gregg Gilbert - Bank of America-Merrill Lynch
Right.
J. Michael Pearson
We also have increased our R&D spending in areas like Poland and Mexico in terms of buying dossiers and registrations so we can dramatically increase the amount of products that we launched there as well. So, part of ...
that's our global R&D number.
Gregg Gilbert - Bank of America-Merrill Lynch
Okay. So we should think about it as a reallocation of R&D.
Okay. Mike, one more before I get back in queue here.
What's you're latest think on the timing for a Taribavirin deal being signed relative to having all the data in your hands? Thanks.
J. Michael Pearson
I think our perspective is the same. We are encouraged by the continuing good results through 60 weeks, but 72 weeks is the official end of the trial.
We are in discussions and whether we sign something before we announce the 72 weeks or after, I am not ready to make a commitment on that.
Gregg Gilbert - Bank of America-Merrill Lynch
Okay. Thanks.
Operator
And your next question comes from the line of Gene Mack with Lazard Capital. Your line is open.
Gene Mack - Lazard Capital Markets
Hi, can you hear me?
J. Michael Pearson
Yes, we can.
Gene Mack - Lazard Capital Markets
Hi. Okay.
Thanks, just a couple of questions. The Alliance revenue I guess that is going to be part, just to make sure, definite part of your cash EPS number on an ongoing basis, amortization?
Peter Blott
Yes, it is.
Gene Mack - Lazard Capital Markets
Okay. And Michael maybe you could, can you remind us what if any long-term safety studies are ongoing still at Retigabine?
J. Michael Pearson
There ... I'm not aware of long-term safety studies.
What we have is the people that chose to remain on product, we continue to provide them Retigabine on a going forward basis. But all the safety studies that were required for the filing are complete.
Gene Mack - Lazard Capital Markets
Okay. And is there an idea how many patients years exposure you have at this point?
And I'm it's a lot, but I just...
J. Michael Pearson
You have that number, Peter? I have to you, it's...
Peter Blott
I don't have in hand but I do know the number of patient years far exceeds what is the normal standard for the FDA requirements.
Gene Mack - Lazard Capital Markets
Okay. And then just a last question.
Has there been any movement on GSK's part to begin any additional studies in neuropathic pain or CNS indications?
J. Michael Pearson
Well, in neuropath we have a neuropathic pain study which has been fully enrolled and we'll get the results of about mid-year. So, they're obviously looking at that.
We ... right now we're focused on two things; getting the files submitted as quickly as possible and a second is the MR formulation which we think is more important than anything else in terms of driving the top line, assuming that the drug is approved.
So, therapeutic pain MR, again the filing and those are the main areas of focus.
Gene Mack - Lazard Capital Markets
Okay. AnD assuming that the MR goes as planned and you have additional characterization of that sometime, I guess later this year.
When do you think is the earliest you could get that into patients?
J. Michael Pearson
I'm hesitating, because we have an agreement with Glaxo that we do not share that kind of information unless we've both agree on it. So, I don't think that one, even though we have a plan, I don't feel that we can answer that question at this point.
Gene Mack - Lazard Capital Markets
All right, fair enough, thanks.
Operator
Our next question comes from the line of Jonathan Aschoff with Brean Murray. Your line is open.
Jonathan Aschoff - Brean Murray
Hi, thanks a lot. What you envision your cash to be at the end of '09 and around the end of August '010 after the debts retire?
J. Michael Pearson
That's an awfully difficult question to answer, because it depends on what acquisitions we make, what assets we sell, the success of our partnering of Taribavirin as well as the dermatology pipeline. What we have done is made sure that we certainly have more than enough funds to pay off the retirement of the convertible debt and the money that we need to continue to operate the business.
So, at minimum we'll have that, but to give your precise number, there's just too many uncertainties.
Jonathan Aschoff - Brean Murray
I asked if we said that there was a mail order purchases and mail order third line deals in generally, you could ask and absent those. These are the same two questions, the cash amount into '09, end of August '010, or is it just too congruent to repeat, one eventual guess?
J. Michael Pearson
I think what you, I think what we've generated about a $100 million in terms of recurring cash out of the business in 2008. We would expect that number to increase given we've made a significant number of efforts to reduce our cost both in terms of headcount as well as many outside contracts.
And so I think if you use that, you don't have to make your own estimate in terms of with that improvement will be and if we do nothing else then we'll have the cash generated from operations and that's what it be.
Jonathan Aschoff - Brean Murray
What you think you'll do for the rest of '09 in terms of buying back stock and/or debt?
J. Michael Pearson
Again I think what we've said in our last call that we want to continue to deploy our cash for three purposes. One is to buyback securities, which include the convertible.
A piece of it is for acquisitions, and a piece of it is to continue to invest in our operations. I think last year we were about 50-50, in terms of how much we put towards debt and acquisitions and probably if I had to make a guess it's probably remain that.
Jonathan Aschoff - Brean Murray
Okay. What exactly did you say about GSK.
Are they newly manufacturing Retigabine, or what are they doing with the manufacturing right now?
J. Michael Pearson
The long term plan would be for GSK to manufacture this, because they can do it at lower cost than using outside contractors. The short-term plan is continuing to use the outside contractors, because that's, we don't want delay the launch, but there is plans overtime to migrate over to Glaxo's manufacturing.
Jonathan Aschoff - Brean Murray
So what is actually delaying the launch from the 1Q '09 to sometime in '09. So it sounded like you said you were loosely committed to '09, but that didn't sound that all that fun?
J. Michael Pearson
I don't think we were. I didn't intend to be loosely committed, so if that's what you took I apologize for that.
I think we are committed and Glaxo is committed to 2009. And it's basically getting the file to be as good possible.
Though the 2009 timeframe, we're committed to and we should be think anything other than that. I think Glaxo's had a lot more experience with this particular division of the FDA than we have.
You probably read about some of that and therefore closer to what what's actually required. And they believe that we should have and I agree with them that we should have the best possible file to minimize the time between filing and actual approval.
Jonathan Aschoff - Brean Murray
Okay. And I guess the last thing is that there is no chance of your cash accounting in the future, just containing cash items, right?
J. Michael Pearson
I don't think we plan on changing our cash accounting. And I think we want to be consistent.
So what we've done is developed... I think it's pretty consistent with lot of other companies that have move to the cash EPS metric.
Jonathan Aschoff - Brean Murray
Okay, thank you very much.
Operator
Our next question comes from the line of Michael Tong with Wachovia Capital. Your line is open.
Michael Tong - Wachovia Securities
Hi, thanks. First question is for Peter, I just want to make sure that on the reported R&D number, that excludes the 10.2 million of Retigabine R&D cost in its entirety and not just a portion of it.
Peter Blott
That is correct, it's a zero in our R&D expense. So, we reported even though that was over 10 million in actual spend.
Essentially you have a matching debit and a credit in the R&D expense line.
Michael Tong - Wachovia Securities
Okay. And the second question is for either Mike or Peter, just sort of philosophical perspective.
As you look at the cash EPS metric, I certainly can understand exclusion of the amortization and in process R&D, things like that. But I am just curious about your decision to include the Alliance revenue coming from the Retigabine upfront payment draw down as well as R&D reimbursement because that seems to me like a non cash item or both of them are non cash items?
Peter Blott
I think what we're looking at when we were assessing that is something that was going to be consistent with our ongoing strategies for the business. We are going to be looking as a company to be partnering assets going forward and therefore we are expecting to be getting from the collaboration with GSK and potentially other sort of partnering or collaborations that we may do in the future more than just this initial upfront payments, that we expect the products to go through and then we will have royalties coming in from the non-collaboration territories and the profit share coming in from the collaboration territories and what were we doing was setting of the rules that we would expect to be living by for the number of years going forward.
And that was the key determinant. So something that we wouldn't want to be chopping and changing in the future.
Michael Tong - Wachovia Securities
Yes, I understand that, but don't you run the risk of the perception that you're excluding non-cash charges but including non-cash revenue sources?
Peter Blott
I think we are being consistent and we're being sort of transparent. I think we're trying to do something.
The terminology, the cash EPS there is no perfect measure of cash EPS. And this is...
I'm just trying to explain what is in there and what isn't... that the consistent components of it.
J. Michael Pearson
I think one way you can look at it is that as we recognize the money that's coming in from the Glaxo, you could view it as that we're releasing the $125 million of cash into the company to be spent for other things. So, in a sense we do have the cash but since some of the upfront payment is somewhere is just pure profit to us, the $25 million and the rest is sort of our share development costs over the foreseeable future.
As Peter mentioned, we do not expect to ongoing development cost to... our share of the development cost to actually get to the $100 million and they are capped at $100 million.
We don't expect to get there and in essence what we are doing is releasing that money to the business on a quarter-by-quarter basis, in accordance to how much money is spend. There was also previous question that I was not able to answer on number of patients years with Retigabine, it's 1400 and is obviously continuing to go up patients continue to be treated.
Operator: Okay. Our next question comes from Greg Gilbert with Banc of America and Merrill Lynch, your line is open.
Gregg Gilbert - Bank of America-Merrill Lynch
Thanks. Just a couple of quick follow-ups.
can you give us a little more meat on the bones on the strategy to differentiate Acanya and the type of spend that you are going to put behind it at least conceptually, compared to the other products and the large companies in that space?
J. Michael Pearson
Showing our leverage is Rajiv De Silva, who joined us about a month ago answer that question.
Rajiv De Silva
Thank you, Mike. As you probably know, Acanya is a combination of clindamycin and benzoyl peroxide and a key differentiating feature for the product is even proprietary formulation we can provide very similar efficacy to existing competing products with much better tolerability.
So, that will be the differentiating feature. I am not going to provide any specific cash guidance, sorry spend guidance on what we are putting behind the brand but I will say that this is a very important launch for us and we are doing several things including revamping our rebate program as well as expanding our field force to support the launch which will happen next week.
Gregg Gilbert - Bank of America-Merrill Lynch
Would it be fair for me to assume that you're resourcing this launch like you would if you were one of those other companies?
Rajiv De Silva
We have resourcing it competitively.
Gregg Gilbert - Bank of America-Merrill Lynch
Okay. And then one more for you Mike; what types of acquisitions and/or sales are you considering at the moment?
Thanks.
J. Michael Pearson
We continue to, I guess there's two or three different areas. One is, we are looking to replace Diastat and Cesamet as I mentioned, either are through in-licensing and/or acquisition.
Fortunately, we have a few years at least on both of them. So we don't have to do anything in a very short-term, but we're looking at that particular space.
We are looking at smaller sort of bolt-on acquisitions in both Poland and in Mexico to take advantage of the depressed zloty as they become available. But again these will be ones that will need to be immediately accretive and in terms of our partnering, I think its Taribavirin, we're looking to find a partnership there that provides us hopefully in upfront and more important significant royalty rates and milestones.
And also our derm pipeline which is of great interest to companies in Europe and in Asia and in Western Europe and Asia, and those are countries we don't operate in. So we'll be looking to partner those products.
Gregg Gilbert - Bank of America-Merrill Lynch
Any possible sales in '09 of product lines or businesses?
J. Michael Pearson
Yes, there are possible sales but for obvious reasons, I'd rather not give specifics on those.
Gregg Gilbert - Bank of America-Merrill Lynch
Sure thanks.
Operator
And your next question comes from the line of James Dawson with Buckingham Research. Your line is open.
James Dawson - Buckingham Research
Hi, what is the FX impact on sales in operating income lines in '09?
Peter Blott
I think I talked about this on the call. I would expect the '09 versus '08 to be $15 million to $20 million of net income.
Therefore, if you just gross the after-tax that's essentially the operating income level of that. I didn't give any numbers on the top line and just to say that is if the currencies stay as they are throughout the rest of 2009 compared to the average exchange rates that we experienced in 2008.
On the top line, I would ... I don't have it actually in front of me, but essentially if you just took either whatever the 2008 sales were by region, or that your projection of the 2009 sales, and just look at the average rate in 2008 versus the average rates that you're predicting for 2009, you can workout that impact.
It is a lot more significant on the top line than on the bottom line because of our costs that we have. But it is something that essentially we manage the business in those countries on a local currency basis.
And it is important that they continue to do what they are doing in terms of sort of the sales and the growth on a local currency basis, the effect of consolidation is, while it's a significant impact, it doesn't change the underlying economics of those markets.
Operator
Okay. Our next question comes from the line of Michael Tong with Wachovia Capital.
Your line is open.
Michael Tong - Wachovia Securities
Hi. Thanks for taking the follow up.
Just Peter, can you give me sense of what your total amortization expense do you expect to incur in 2009 on a GAAP basis?
Peter Blott
I ... We are due to be issuing the 10-K in a few days or later towards the end of this week.
I think that information is going to be disclosed in the 10-K. I don't have it to have the purchase accounting, is relatively complicated and in assessing the economic lives off the items.
I gave the total, I think in it my call earlier, of how much I think the product rates would be and I think the asset lives depends on individual products but they're something in the region of 6 to 11 years across the board, and therefore if you just sort of use that as a guidance or wait until the 10-K comes out later on in the week. Sorry, I don't have that information directly in front of me.
Michael Tong - Wachovia Securities
Okay. That's fair enough thanks.
Operator
(Operator Instructions).
J. Michael Pearson
Okay. Well if there is no more questions, thank you very much for joining us this morning and we look forward to talking to you in the future.
Operator
Thank you so much. This concludes our conference call for today.
You may now disconnect your lines.