Analyst Conference Summary

generic pharmaceuticals

conference date: October 30, 2014 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2014 (third quarter, Q3 2014)

Forward-looking statements

Overview: Mylan seems to have hit an upward inflection point, resulting in accelerated revenue and profit growth.

Basic data (GAAP):

Revenue of was $2.08 billion, up 13% sequentially from $1.84 billion, and up 18% from $1.77 billion in the year-earlier quarter.

Net income was $499.1 million, up 299% sequentially from $125.2 million and 214% from $158.9 million year-earlier.

Earnings Per Share (EPS) were $1.26, up 294% sequentially from $0.32 and 215% from $0.40 year-earlier.

Guidance:

For Q4 2014 EDITDA is expected between $660 and $720 million. Non-GAAP net income expected between $410 and $450 million. Diluted non-GAAP EPS $1.03 to $1.09.

This excludes revenue from the possible launches of generic Copaxone and generic Lidoderm.

Full year 2014 adjusted diluted EPS guidance raised to $3.54 to $3.60. $7.7 to $7.8 billion in revenue, revised down due to delays in product approvals, and some negative foreign exchange rate effect. 52% to 53% adjusted gross margin.

Conference Highlights:

Exceptional quarter. Diverse portfolio and global supply chain allows Mylan to take advantage of opportunities when presented. However, the FDA has been slow to get new generics through the approval process, most notably Copaxone and Lidoderm. In the quarter there was a $80 million benefit from a litigation agreement with Stride related to the Agila acquisition.

Remains excited about acquisition of Abbott's non-U.S. developed markets specialty and branded generics business. Expected to close in first quarter of 2015.

Non-GAAP numbers: EPS $1.16, up 68% sequentially from $0.69, and up 41% from $0.82 year-earlier. Net income $462.8 million, up 69% sequentially from $273.3 million, and up 43% from $324.3 million year-earlier. Gross margin 54%.

EBITDA was $652.7 million, up sequentially from $392.4 million, and up from $401.4 million year-earlier. Adjusted EBITDA was $736 million.

Cash and equivalents balance was $199.6 million, sequentially from $193.9 million. Long Term Debt was $5.7 billion, down sequentially from $7.9 billion. Cash from operating activities ytd $1.03 billion. Inventories ended at $1.8 billion. Capital expenditures ytd were $220 million.

Generics segment revenue was $1.61 billion, up 15% y/y. Sales in Europe of $351.5 million were up just 1% y/y, on lower pricing. North American sales were $841.8 million, up 19% y/y; rest of world revenue was $414.1 million, up 19% y/y, driven by Indian anti-retroviral franchise.

Specialty Third Party Net Sales were $462.0 million, up 29% y/y led by EpiPen Auto-Injector.

Cost of sales was $1.07 billion, leaving gross profit of $1.01 million. Operating expenses of $517 million consisted of: research and development $158 million; selling general and administrative $418 million; litigation settlement benefit $21 million; other operating income $80 million. Leaving income from operations of $495 million. Interest expense was $84 million, and other income was $2 million. Income tax benefit was $87 million. Earnings to noncontrolling interest $0.3 million.

Expects R&D expense to continue to increase throughout the year to support biosimilar applications.

Mylan has about 300 ANDAs pending with the FDA. Believes approvals are simply a matter of time.

Reached an agreement with Gilead to manufacture and sell Sovaldi for Hepatitis C in India. Is negotiating other deals with Gilead.

The adjusted diluted EPS target for 2018 remains a minimum of $6 per share.

Q&A:

Abbott, tax inversion? Believes it will be a successful tax inversion.

Investor doubt about Abbott acquisition, after 2 years out? We believe in the strategic rational of greatly enlarging our markets outside the U.S. We will also enhance our cash flows, giving us flexibility to make other acquisitions.

Interchangeable label for insulin? The clinical program was agreed to with the FDA.

Executing another strategic deal? We are actively pursuing many things. "There are plenty of transactions out there that do make strategic and financial sense... We are able to move swiftly when we find the right target."

Treasury notice tax inversion issues? We will file our S4 here as early as next week, with more disclosure around the tax inversion. We don't know where tax reform may go, right now we are sticking with out July projections.

$80 million Stride payment color? It was for revenue Mylan was unable to realize in 2014 as a result of ongoing remediation of Agila facilities and lack of product production. We had a hold back, agreed to pay them $150 million from the escrow, we took the $80 million plus $20 million on a separate matter.

Suggested Mylan's delays at the FDA because of "poorly formulated products," is it really the FDA? "I am frustrated as I think the industry is." Not aware of any Mylan "poorly formulated products." Working closely with the FDA, but frustrated with delays, despite Mylan receiving more product approvals than any of its competitors.

There is pricing pressure in Europe, with volume offsetting that, more in Italy than in France. Mylan has maintained its market leadeship position in France. We are excited about launching direct to consumer advertising in France. Abbott would really leverage our capabilities.

Generic industry consolidation? Our industry was hyper competitive, now it is hyper consolidating. Mylan is vocal about being an acquirer and having the scale, size, and quality manufacting capabilities to serve global customers.

Abbott gross margins, room for improvement? Yes.

We don't see any outstanding issue with Copaxone with the FDA at this time, so yes it could happen any time, it was taken out of guidance for 2014 as a conservative caution.

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