-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDr/sZUJiYrv3MGgW10gsBX43irCuAVoa3cxwAh+z99cIqg6FUkwCMhoOiNGqLnO QbAsoGytY2MILB3GY911ow== 0000310158-96-000008.txt : 19960513 0000310158-96-000008.hdr.sgml : 19960513 ACCESSION NUMBER: 0000310158-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: BSE SROS: CSE SROS: CSX SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHERING PLOUGH CORP CENTRAL INDEX KEY: 0000310158 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221918501 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06571 FILM NUMBER: 96559239 BUSINESS ADDRESS: STREET 1: ONE GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940-1000 BUSINESS PHONE: 2018227000 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 Commission file number 1-6571 SCHERING-PLOUGH CORPORATION Incorporated in New Jersey 22-1918501 One Giralda Farms (I.R.S. Employer Identification No.) Madison, N.J. 07940-1000 (201) 822-7000 (telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO Common Shares Outstanding as of March 31, 1996: 368,425,332 PART I. - FINANCIAL INFORMATION Item 1. Financial Statements SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Dollars in millions, except per share figures)
Three Months Ended March 31 1996 1995 Sales . . . . . . . . . . . . . . $1,382.7 $1,224.2 Costs and expenses: Cost of sales. . . . . . . . . . 262.7 235.8 Selling, general and administrative. . . . . . . 503.3 455.8 Research and development . . . . 162.9 147.2 Other expense, net . . . . . . . 21.2 8.0 950.1 846.8 Income before income taxes. . . . 432.6 377.4 Income taxes. . . . . . . . . . . 106.0 92.5 Income from continuing operations 326.6 284.9 Loss from discontinued operations - (6.3) Net income. . . . . . . . . . . . $ 326.6 $ 278.6 Earnings per share: Continuing operations. . . . . . $ .89 $ .77 Discontinued operations. . . . . - (.02) Earnings per common share . . . . $ .89 $ .75 Dividends per common share. . . . $ .29 $ .255 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions, except per share figures)
March 31, December 31, 1996 1995 Assets Cash and cash equivalents . . . . . . . . $ 356.8 $ 321.4 Accounts receivable, net. . . . . . . . . 712.1 569.3 Inventories . . . . . . . . . . . . . . . 522.1 502.0 Prepaid expenses, deferred income taxes and other current assets . . . . . 607.2 563.6 Total current assets. . . . . . . . . 2,198.2 1,956.3 Property, plant and equipment . . . . . . 3,156.5 3,136.0 Less accumulated depreciation . . . . . . 1,054.2 1,037.1 Property, net . . . . . . . . . . . . 2,102.3 2,098.9 Other assets. . . . . . . . . . . . . . . 677.0 609.4 $4,977.5 $4,664.6 Liabilities and Shareholders' Equity Accounts payable. . . . . . . . . . . . . $ 321.7 $ 374.2 Short-term borrowings and current portion of long-term debt. . . . . . . . 733.7 841.3 Other accrued liabilities . . . . . . . . 1,329.7 1,146.6 Total current liabilities . . . . . . 2,385.1 2,362.1 Long-term debt. . . . . . . . . . . . . . 87.0 87.1 Other long-term liabilities . . . . . . . 600.6 592.5 Shareholders' Equity: Preferred shares - $1 par value each; issued - none. . . . . . . . . . . - - Common shares - $1 par value each; shares issued: 1996 - 506,640,813 1995 - 502,965,382 . . . . . . . . . . . 506.6 503.0 Paid-in capital . . . . . . . . . . . . . 118.2 49.5 Retained earnings . . . . . . . . . . . . 4,562.6 4,341.8 Foreign currency translation adjustment and other . . . . . . . . . . (117.2) (103.9) Total . . . . . . . . . . . . . . . . 5,070.2 4,790.4 Less treasury shares, at cost - 1996, 138,215,481 shares; 1995, 138,796,653 shares . . . . . . . . 3,165.4 3,167.5 Total shareholders' equity. . . . . . 1,904.8 1,622.9 $4,977.5 $4,664.6 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED) (Dollars in millions)
1996 1995 Operating Activities: Income from continuing operations . . . . $ 326.6 $ 284.9 Depreciation and amortization . . . . . . 42.3 39.4 Working capital changes - source (use): Accounts receivable. . . . . . . . . . . (149.9) (142.4) Inventories. . . . . . . . . . . . . . . (27.9) (7.2) Other current assets . . . . . . . . . . (45.2) (24.8) Accounts payable and other accrued liabilities . . . . . . . . . . . . . . 134.7 (16.5) Other, net. . . . . . . . . . . . . . . . 2.3 (26.7) Net cash provided by operating activities . . . . . . . . . . . . . . . 282.9 106.7 Investing Activities: Reduction of investments. . . . . . . . . .4 43.0 Purchases of investments. . . . . . . . . (7.4) (7.2) Capital expenditures. . . . . . . . . . . (48.9) (47.9) Other, net. . . . . . . . . . . . . . . . 2.4 (2.3) Net cash used for investing activities . . . . . . . . . . . . . . . (53.5) (14.4) Financing Activities: Short-term borrowings, net. . . . . . . . (106.5) 27.6 Long-term borrowings, net . . . . . . . . - .1 Common shares repurchased . . . . . . . . - (13.8) Dividends paid to common shareholders . . (105.9) (94.9) Proceeds from other equity transactions . . . . . . . . . . . . . . 18.5 8.5 Net cash used for financing activities . . . . . . . . . . . . . . . (193.9) (72.5) Effect of exchange rates on cash and cash equivalents. . . . . . . . . . . . . (.1) (1.1) Net Cash Flow from Continuing Operations . 35.4 18.7 Net Cash Flow from Discontinued Operations - (8.1) Net increase in cash and cash equivalents . 35.4 10.6 Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . 321.4 115.6 Cash and cash equivalents, end of period . $ 356.8 $ 126.2 See notes to consolidated financial statements.
SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in millions, except per share figures) Basis of Presentation The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The statements should be read in conjunction with the accounting policies and notes to consolidated financial statements included in the Company's 1995 Annual Report on Form 10-K. In the opinion of management, the financial statements reflect all adjustments necessary for a fair statement of the operations for the interim periods presented. Earnings Per Common Share Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Shares issuable through the exercise of stock options and warrants and under deferred delivery agreements are not considered in the calculation, as they do not have a material effect on the determination of earnings per common share. The weighted-average number of shares used in the computation of earnings per common share for the three months ended March 31, 1996 and 1995 were 365,708,883 and 372,038,104, respectively. During the first quarter, the Company issued approximately 1.0 million shares of common stock in connection with the acquisition of Canji, Inc., a gene therapy company (accounted for using the purchase method of accounting). During the first quarter, the Company also issued approximately 2.6 million shares of common stock in exchange and settlement for warrants to purchase 10.6 million shares of common stock. Inventories Inventories consisted of: March 31, December 31, 1996 1995 Finished products . . . . . . . $ 210.7 $ 213.2 Goods in process. . . . . . . . 220.6 179.4 Raw materials and supplies. . . 90.8 109.4 Total inventories . . . . . . $ 522.1 $ 502.0 Sales Segment sales for the three months ended March 31, 1996 and 1995 were as follows: 1996 1995 Pharmaceutical products . . . . $1,197.9 $1,030.3 Health care products. . . . . . 184.8 193.9 Consolidated sales. . . . . . $1,382.7 $1,224.2 Legal and Environmental Matters The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including environmental matters and product liability cases. The recorded liabilities for these matters at March 31, 1996 were not material. Management believes that, except for the matters discussed in the following paragraph, it is remote that any material liability in excess of the amounts accrued will be incurred. The Company is a defendant in more than 150 antitrust actions commenced in state and federal courts by independent retail pharmacies, chain retail pharmacies and consumers. The plaintiffs allege price discrimination and/or conspiracy between the Company and other defendants to restrain trade by jointly refusing to sell prescription drugs at discounted prices to the plaintiffs. One of the federal cases is a class action on behalf of approximately two-thirds of all retail pharmacies in the United States alleging a price-fixing conspiracy. The Company had agreed, subject to court approval, to settle the federal class action for a total of $22.1 payable over three years. On April 4, 1996, the United States District Court for the Northern District of Illinois refused to approve the proposed settlement of the federal class action due to a lack of any change in the opportunity the class would have to obtain prices similar to those the Company extends to managed care purchasers. The court also denied all motions of defendant manufacturers for summary judgment. On April 11, 1996, the court voided a May 7, 1996 trial date and all pre-trial preparation to allow for consideration of requests to certify certain pre-trial rulings to the appellate court. On May 6, 1996, the Company entered into an amendment to the proposed settlement to resolve the federal class action. The amendment provides, among other things, that the Company shall not refuse to grant discounts on brand name prescription drugs to a retailer based solely on its status as a retailer and that, to the extent a retailer can demonstrate its ability to affect market share of a Company brand name prescription drug in the same manner as a managed care organization with which the retailer competes, it will be entitled to negotiate similar incentives subject to the rights, obligations, exemptions and defenses of the Robinson-Patman Act and other laws and regulations. The financial terms of the proposed settlement are unchanged. The amended settlement is subject to court approval. A fairness hearing is scheduled for June 11, 1996. Three of the state cases have been certified as class actions. One is a class action on behalf of certain retail pharmacies in California, and the other two are class actions in California and Alabama, respectively, on behalf of certain consumers of prescription medicine. Plaintiffs seek treble damages in an unspecified amount and an injunction against the allegedly unlawful conduct. The Company believes that all these actions are without merit and is defending itself vigorously against all such claims. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - three months ended March 31, 1996 compared with the corresponding period in 1995. Consolidated sales for the first quarter increased $158.5 million or 13 percent compared with the same period in 1995. Excluding the effect of foreign currency exchange rate fluctuations, consolidated sales grew 12 percent. In the United States, many of the Company's pharmaceutical products are subject to increasingly competitive pricing as managed care groups, institutions and government agencies seek price discounts. In most international markets, the Company operates in an environment of government-mandated cost containment programs. Several governments have placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods of cost control. Since the Company is unable to predict the final form and timing of any future domestic and international governmental or other health care initiatives, their effect on future operations and cash flows cannot be reasonably estimated. Sales Domestic prescription pharmaceutical sales advanced 29 percent for the first three months of 1996. Sales of respiratory products increased 23 percent, due to continued strong growth of the CLARITIN brand of nonsedating antihistamines and the VANCERIL line of asthma products. The respiratory sales gain also reflected a moderate decline in sales of the PROVENTIL (albuterol) line of asthma products, due to increased generic competition. Sales of the PROVENTIL line totaled $117 million for the quarter, and metered-dose inhalers contributed approximately 70 percent of this amount. The PROVENTIL formulations of solution, syrup and tablets have been subject to generic competition, and in December 1995 generic metered-dose inhalers entered the market. In response, the Company's generic pharmaceutical marketing subsidiary, Warrick Pharmaceuticals, launched its own version of a generic inhaler. While the generic inhalers have significantly reduced branded PROVENTIL inhaler sales, the Warrick inhaler largely offset the sales decline. Competition from generic metered-dose inhalers will, however, negatively affect future sales and profitability of the PROVENTIL (albuterol) line of asthma products. U.S. sales of anti-infective and anticancer products rose 56 percent compared with 1995, due to the launch of CEDAX, a third- generation cephalosporin antibiotic, in the quarter. Also, INTRON A, the Company's alpha interferon anticancer and antiviral agent, achieved significant gains due to increased utilization for both hepatitis and oncology. Domestic cardiovascular product sales grew 37 percent for the quarter, reflecting market share gains for IMDUR, a once-daily oral nitrate, and K-DUR potassium supplements. Sales of dermatological products advanced 17 percent for the quarter, due to higher sales of LOTRISONE, an antifungal/anti-inflammatory cream. International ethical pharmaceutical product sales increased 6 percent for the first three months of 1996. Excluding the impact of foreign exchange rate fluctuations, sales would have risen 4 percent. Sales of anti-infective and anticancer products grew 10 percent for the quarter, due to gains for INTRON A and CEDAX. Sales of INTRON A reflect a stabilization in Japan, along with increases occurring in most major European markets. International dermatological product sales advanced 8 percent in the quarter, primarily reflecting gains for ELOCON, a mid-potency topical corticosteroid. Sales of cardiovascular products rose 11 percent, mainly the result of higher sales of NITRO-DUR transdermal nitroglycerin patches. Respiratory product sales advanced 1 percent for the quarter, as CLARITIN growth was tempered by a decline in sales of other allergy products in Japan. Sales growth for the quarter was also aided by continued gains for LOSEC, an anti-ulcer treatment licensed from AB Astra. Worldwide sales of animal health products declined by 7 percent, excluding foreign exchange rate fluctuations. The sales declines occurred in the U.S. due to unfavorable market conditions for food-producing animals. International animal health sales, however, posted gains for most products. Sales of health care products declined 5 percent in the first quarter. Over-the-counter product sales declined 17 percent, primarily due to aggressive private-label competition for allergy/cold and female health products. Foot care product sales declined modestly, while sales of sun care products rose moderately. Income before income taxes from continuing operations increased 15 percent for the quarter as compared with 1995, and represented 31.3 percent of sales versus 30.8 percent last year. Cost of sales as a percentage of sales decreased slightly to 19.0 percent from 19.3 percent in 1995, principally the result of a favorable sales mix of higher margin pharmaceutical products. Selling, general and administrative expenses represented 36.4 percent of sales in the first quarter compared with 37.2 percent last year. The decrease in the ratio was the result of cost containment efforts in areas not affected by sales volume. Research and development spending rose 11 percent in the quarter, representing 11.8 percent of sales compared with 12.0 percent a year ago. The higher spending reflects the Company's funding of both internal research efforts and research collaborations with various partners to develop a steady flow of innovative products and line extensions. The effective tax rate for continuing operations was 24.5 percent in the first three months of both 1996 and 1995. Earnings per common share from continuing operations advanced 16 percent in the first quarter to $.89 from $.77 in 1995. Changes in foreign currency exchange rates had no effect on earnings per common share from continuing operations. Liquidity and financial resources - three months ended March 31, 1996 Cash generated from operations continues to be the Company's major source of funds to finance working capital, additions to property, shareholder dividends and common share repurchases. Cash provided from operations totaled $282.9 million for the first three months of 1996. This cash funded the spending of $105.9 million for shareholder dividends and $48.9 million for capital expenditures, as well as provided for the $106.5 million reduction in short-term borrowings. In June 1995, the Board of Directors authorized the purchase of $500 million of common shares. As of March 31, 1996 this program was approximately 96 percent complete. In April 1996, the Board of Directors increased the quarterly dividend 14 percent to $.33 per share from $.29. The Company's liquidity and financial resources continue to be sufficient to meet its operating needs. PART II OTHER INFORMATION Item 1. Legal Proceedings The first paragraph of Item 3, Legal Proceedings of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, relating to certain product liability actions pending against the Company, is incorporated herein by reference and should be replaced in its entirety by this paragraph. Subsidiaries of the Company are defendants in lawsuits involving approximately 390 plaintiffs arising out of the use of synthetic estrogens by the mothers of the plaintiffs. The courts in New York and Ohio, where most of these lawsuits are pending, have recently required plaintiffs to file individual lawsuits rather than remain part of multi-plaintiff actions. In virtually all of these lawsuits, one being an alleged class action, many other pharmaceutical companies are also named defendants. The female plaintiffs claim various injuries, including cancerous or precancerous lesions of the vagina and cervix and a multiplicity of pregnancy problems. A number of suits involve infants with birth defects born to daughters whose mother took the drug. The total amount claimed against all defendants in all the suits amounts to more than $2 billion. While it is not possible to precisely predict the outcome of these proceedings, it is management's opinion that it is remote that any material liability in excess of the amount accrued will be incurred. The final paragraph of Item 3, Legal Proceedings of Part I of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, relating to certain antitrust actions pending against the Company, is incorporated herein by reference. On April 4, 1996, the United States District Court for the Northern District of Illinois refused to approve the proposed settlement of the federal class action due to a lack of any change in the opportunity the class would have to obtain prices similar to those the Company extends to managed care purchasers. The court also denied all motions of defendant manufacturers for summary judgment. On April 11, 1996, the court voided a May 7, 1996 trial date and all pre-trial preparation to allow for consideration of requests to certify certain pre-trial rulings to the appellate court. On May 6, 1996, the Company entered into an amendment to the proposed settlement to resolve the federal class action. The amendment provides, among other things, that the Company shall not refuse to grant discounts on brand name prescription drugs to a retailer based solely on its status as a retailer and that, to the extent a retailer can demonstrate its ability to affect market share of a Company brand name prescription drug in the same manner as a managed care organization with which the retailer competes, it will be entitled to negotiate similar incentives subject to the rights, obligations, exemptions and defenses of the Robinson-Patman Act and other laws and regulations. The financial terms of the proposed settlement are unchanged. The amended settlement is subject to court approval. A fairness hearing is scheduled for June 11, 1996. It is not possible to predict the outcome of the federal class action or the other antitrust proceedings. On March 13, 1996, the Company was notified that the United States Federal Trade Commission is investigating whether the Company, along with other pharmaceutical companies, conspired to fix prescription drug prices. The Company vigorously denies that it has engaged in any price-fixing conspiracy. Item 4. Submission of Matter to a Vote of Security Holders (a) The Annual Meeting of Shareholders was held on April 23, 1996. (b) Not applicable. (c) The designation by the Board of Directors of Deloitte & Touche LLP to audit the books and accounts of the Corporation for the year ended December 31, 1996 was ratified by a vote of shares as follows: FOR AGAINST ABSTAIN 318,042,399 773,679 804,926 All of the nominees for director were elected by a vote of shares, as follows: TERM (YEARS) FOR WITHHELD Carl E. Mundy, Jr. 1 315,458,335 4,162,669 Patricia F. Russo 1 315,589,109 4,031,895 Hans W. Becherer 3 316,399,080 3,221,924 Regina E. Herzlinger 3 316,247,049 3,373,955 Robert F. W. van Oordt 3 316,346,081 3,274,923 James Wood 3 316,335,094 3,285,910 (d) None Item 6. Exhibits and Reports on Form 8-K a) Exhibits - The following Exhibits are filed with this document: Exhibit Number Description 11 - Computation of Earnings Per Common Share 27 - Financial Data Schedule 99 - Cautionary Statements Regarding Safe Harbor b) Reports on Form 8-K: No report has been filed during the three months ended March 31, 1996. SIGNATURE(S) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Schering-Plough Corporation (Registrant) Date May 10, 1996 /s/ Thomas H. Kelly Thomas H. Kelly Vice President and Controller EX-11 2 Exhibit 11 SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (Amounts in millions, except per share figures)
Three Months Ended March 31, 1996 1995 Earnings per Common Share, As Reported: Income from continuing operations . . . $ 326.6 $ 284.9 Discontinued operations . . . . . . . . - (6.3) Net income applicable to common shares. 326.6 278.6 Average Number of Common Shares Outstanding . . . . . . . . . . . . . . 365.7 372.0 Earnings per Common Share: Income from continuing operations . . . .89 .77 Discontinued operations . . . . . . . . - (.02) Earnings per Common Share . . . . . . . $ .89 $ .75 Earnings per Common Share, Assuming Full Dilution: (a) Average Number of Common Shares Outstanding . . . . . . . . . . . . . . 365.7 372.0 Shares Contingently Issuable for Stock Incentive Plans and Warrant Agreements. . . . . . . . . . . . . . . 4.1 4.6 Average Number of Common Shares and Common Share Equivalents Outstanding. . 369.8 376.6 Earnings per Common Share, Assuming Full Dilution . . . . . . . . . . . . $ .88 $ .74 (a) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion NO. 15 because it results in dilution of less than 3%.
EX-27 3
5 This schedule contains summary financial data extracted from the Schering-Plough Corporation consolidated financial statements and related Exhibits for the three months ended March 31, 1996, and is qualified in its entirety by reference to such financial statements. Certain 1995 amounts have been restated for the effect of discontinued operations and a stock split in the second quarter 1995. 1,000 3-MOS 3-MOS DEC-31-1996 DEC-31-1995 MAR-31-1996 MAR-31-1995 356,800 126,200 0 0 712,100 784,900 0 0 522,100 493,200 2,198,200 1,937,900 3,156,500 3,103,200 1,054,200 1,007,400 4,977,500 4,563,000 2,385,100 2,047,000 87,000 185,900 0 0 0 0 506,600 251,500 1,398,200 1,508,900 4,977,500 4,563,000 1,382,700 1,224,200 1,382,700 1,224,200 262,700 235,800 262,700 235,800 162,900 147,200 0 0 0 0 432,600 377,400 106,000 92,500 326,600 284,900 0 (6,300) 0 0 0 0 326,600 278,600 .89 .75 .88 .74
EX-99 4 EXHIBIT 99 CAUTIONARY STATEMENTS REGARDING "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company is hereby filing a cautionary statement identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company. - Fluctuations in interest rates and foreign currency exchange rates. - Competitive factors including technological advances attained by competitors; patents granted to competitors; new products of competitors coming to the market; generic competition as the Company's products mature. - Increased pricing pressure both in the United States and abroad from managed care buyers, institutions and government agencies. - Government laws and regulations affecting domestic and international operations including, among other laws and regulations, those resulting from healthcare reform initiatives at the state and federal level, as well as those relating to trade, monetary and fiscal policies, taxes, price controls, and possible nationalization. - Patent positions can be highly uncertain and patent disputes are not unusual. An adverse result in a patent dispute can preclude commercialization of products or negatively impact sales of existing products. - Uncertainties of the FDA approval process and the regulatory approval processes of foreign countries, including, without limitation, delays in approval of new products. - Changes in the current tax law such as those currently being considered by the United States Congress which would amend the Section 936 income tax credit to completely phase out the income-based tax credit for those companies with operations in Puerto Rico, where the Company has a major manufacturing facility. - Difficulties in product development. Pharmaceutical product development is highly uncertain. Products that appear promising in the early phases of development may fail to reach market for numerous reasons. They may be found to be ineffective or to have harmful side effects in clinical or pre-clinical testing, they may fail to receive the necessary regulatory approvals, they may turn out not to be economically feasible because of manufacturing costs or other factors or they may be precluded from commercialization by the proprietary rights of others. - Recalls of pharmaceutical products as a consequence of previously unknown side-effects or for other reasons may occur. - Significant litigation adverse to the Company. 22533-1 -----END PRIVACY-ENHANCED MESSAGE-----