Analyst Conference Summary

generic pharmaceuticals

conference date: February 27, 2014 @ 7:00 AM Pacific Time
for quarter ending: December 31, 2013 (fourth quarter, Q4 2013)

Forward-looking statements

Overview: Continued revenue and EPS growth.

Basic data (GAAP):

Revenue of was $1.81 billion, up 2% sequentially from $1.767 billion, and up 5% from $1.72 billion in the year-earlier quarter.

Net income was $180.2 million, up 13% sequentially from $158.9 million and up 11% from $162.0 million year-earlier.

Earnings Per Share (EPS) were $0.78, up 95% sequentially from $0.40 and up 20% from $0.65 year-earlier.

Guidance:

For the full year 2014 total revenue is expected between $7.8 and $8.2 billion, with non-GAAP gross margin of 51 to 53%, EBITDA between $2.2 and $2.4 billion, net income between $1.265 and $1.46 billion, and non-GAAP EPS of $3.25 to $3.60. Operating cash flow expected between $1.2 and $1.4 billion, with capital expenses of $350 to $450 million. Tax rate 24% to 26%.

Specialty segment growth rate about 20%; generics about 15%.

389 million to 409 million diluted shares, assuming share price of $40 to $60, due to dilutive impact of warrants and employee stock options.

But Q1 adjusted EPS is expected to be flat y/y.

Conference Highlights:

While in 2013 Mylan "hit meaningful milestones in our key growth drivers," nevertheless "we saw several key product approvals delayed." This will create opportunities in 2014; CEO Heather Bresch has "great confidence in our expectations of 16% growth in revenues and 19% growth in adjusted diluted EPS for the year."

Agila acquisition has gone well, with improvements being made and many new injectable product launches expected in 2014 as well as expansion of other product sales in India.

The stronger U.S. dollar had a negative impact of about 2% compared to year-earlier.

Generic revenue was $1.6 billion. Of that $854 million was in North America, $392.5 million in EMEA, and $371.4 million in rest-of-world.

New product launches were $126 million in the quarter, down substantially from $229 million year-earlier, because of higher levels of new product launches in 2012. $77 million of revenue was in North America. Third party generics revenue was $1.62 billion, up from $1.55 billion year-earlier.

Specialty segment net revenue was $176.1 million, up 13% y/y. EpiPen was the most significant contributor to segment revenue.

GAAP Gross margin was 44%, up from 43% year-earlier.

Non-GAAP numbers: EPS $0.78, down 5% sequentially from $0.82, and up 20% from $0.65 year-earlier. Net income $308.1 million, up % from $266.9 million year-earlier.

EBITDA was $436.5 million, up from $398.5 million year-earlier.

Non-GAAP gross margin 51%, up from 49% year-earlier. Increased margins resulted mainly from increased specialty business.

Cash and equivalents balance was $291.3 million. Debt was $7.6 billion. Cash from operating activities was $ million. Inventories ended at $1.66 billion.

Cost of sales was $1.01 billion, leaving gross profit of $796.0 million. Operating expenses of $522.7 million consisted of: research and development $155.9 million; selling general and administrative $380.0 million; litigation settlement benefit $13.2 million. Leaving income from operations of $273.2 million. Interest expense was $79.6 million, and other expense was $0.5 million. Income tax provision was $181.0 million.

Biologic biosimilar development is in varying stages by product, includes substitutes for Herceptin, Neulasta, Humira, Avastin, and Enbrel. Trastuzumab (Herceptin) will be in a further trial this year. One insulin analog, Glargine (Lantus) has completed Phase I and is expected to move into Phase III trials in 2014. However, there is no clear pathway for biosimilars in the U.S. yet. Generic Herceptin is ready for launch in India.

Pfizer partnership is seeing rapid revenue expansion.

Copaxone expected to launch at market formation later this year.

Believes can exceed $6 per share in EPS in 2018.

Full year 2013 revenue was $6.91 billion, up 2% from 2012. GAAP EPS $1.58 up 4% y/y. Repurchased about $1 billion of stock during the year.

Q&A:

Merger and Acquisition (M&A) thoughts? We have parameters in place. We are looking at anything that is accretive and complementary. With Agila closed we are well-poised for a transaction.

Brand name business? We believe there is great opportunity to leverage our infrastructure on the brands. We can organically produce opportunity and partners, particularly in the respiratory niche.

Size range of substantial M&A deals? We are not limiting ourselves, if a deal is accretive.

Domiciling outside the U.S.? It would not be a primary driver, but it could be a benefit of a strategic deal.

Q1 guidance for flatness y/y? We expected lidoderm approval in Q4. An approval in Q1 would represent an upside for the quarter.

Would you consider a merger of equals, or an exit? There is a lot happening in the industry today. We are not standing still, and are looking at everything. "Our model is to build upon the great company we have put in place today."

Europe in Q4, and going forward? Overall annual growth was pleasing. We worked hard during the slump with what we could control. "Utilization rates are low, so the runway is still there, especially in countries like Italy."

Phase 2b combo product? Just finished the trial. Will meet with FDA to plan Phase III program.

Lidoderm (Lidocaine)? We don't believe first to file to block our approval. There is nothing on our side keeping us from approval. It is just a timing issue. The approval could come any day.

Market formation timeline for copaxone? We are targeting the patent expiration date in May. But the FDA is the determining factor.

EpiPen? There is some negative seasonality, due to the cold, long winter. The runway is still there, we are working on getting legislation passed. Things could not be better. Will talk about it more on investor day.

Agila is now totally integrated, we will not break out projected new product sales for 2014. We do expect our injectables business to double this year.

Topline guidance for 2014, what has changed to get to that high growth rate, also slower rate of EPS growth? We try to balance top and bottom line growth. As we add injectables, and opportunities compound themselves, we will continue to execute for long term EPS growth.

We are confident of our guidance for 2014 irregardless of missing any particular approvals.

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