Analyst Conference Summary

generic pharmaceuticals

conference date: August 7, 2014 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2014 (second quarter, Q2 2014)

Forward-looking statements

Overview: Results in line with guidance: revenue growth, but increased expenses to prepare for new product launches. Lowered top end of full 2014 revenue guidance.

Basic data (GAAP):

Revenue of was $1.84 billion, up 7% sequentially from $1.72 billion, and up 8% from $1.70 billion in the year-earlier quarter.

Net income was $125.2 million, up 8% sequentially from $115.9 million and down 30% from $177.7 million year-earlier.

Earnings Per Share (EPS) were $0.32, up 10% sequentially from $0.29 and down 30% from $0.46 year-earlier.

Guidance:

Full 2014 revenue $7.8 to $8.0 billion (was $7.8 to $8.2 billion). Non-GAAP net income $1,265 to $1.370 billion (was $1,265 to $1.460). EPS $3.25 to $3.45 (was $3.25 to $3.60). Capital expense $350 to $400 million (was $350 to $450 million). Average diluted shares 390 to 400 million (was 389 to 405 million).

Changes result mainly from delays in approvals at FDA.

Reaffirmed opportunity to accelerate target of at least $6.00 in adjusted diluted EPS in 2018.

Even without launch of Copaxone in Q4 Mylan expects to be within the 2014 guidance.

Conference Highlights:

Revenues grew y/y across all regions and businesses. Leader was double-digit growth in the Specialty business. Results were achieved "despite ongoing delays in approvals of key products by the U.S. Food and Drug Administration."

The previously announced acquisition of Abbott's non-U.S. developed markets specialty and branded generics business "positions Mylan for the next phase of our growth."

Mylan looks forward to the increased revenue from new FDA approvals and key product launches that have been delayed.

Non-GAAP numbers: EPS $0.69, up 4.5% sequentially from $0.66, and up 1% from $0.68 year-earlier. Net income $273.3 million, up 5% sequentially from $260.4 million, and up 4% from $261.6 million year-earlier. $410 million operating income. Gross margin 50%, up over 1% y/y.

EBITDA was $371.8 million, down sequentially from $392.4 million, and down from $423.1 million year-earlier. Adjusted EBITDA was $488.1 million.

GAAP gross margin 44%, up sequentially from 43.0%, but flat y/y.

Cash and equivalents balance was $193.9 million. Long Term Debt was $7.9 billion. Cash from operating activities was $559 million for first half of year. Inventories ended at $1.8 billion. Capital expenditures were $153 million for first half of year.

Generics segment revenue was $1.53 billion, up 5% y/y, led by sales in Europe. Specialty Third Party Net Sales were $287.8 million, up 22% y/y led by EpiPen Auto-Injector. All 50 states now allow students to bring their injectors to school. Other revenue was $21.0 million.

Cost of sales was $1.03 billion, leaving gross profit of $809 million. Operating expenses of $583 million consisted of: research and development $155 million; selling general and administrative $404 million; litigation settlement benefit $23.2 million. Leaving income from operations of $226 million. Interest expense was $84.6 million, and other expense was $4 million. Income tax provision was $11 million. Earnings to noncontrolling interest $1.4 million.

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

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.

Revenue by region: North America $737 million; Europe $396 million; rest of world $396 million.

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

Generic Copaxone is a high priority and continues to work with FDA. Has provided FDA with all the information they have requested. Teva has a lawsuit in India that is designed to prevent generic Copaxone sales in the U.S. The Supreme Court hearing is scheduled for October 15. Believes will be at least one generic competitor at launch.

Generic Celebrex still expected to launch in Q4.

Mylan still has further borrowing capacity and may still do accretive acquisitions.

Mylan's Investor Day will be postponed.

Q&A:

Could you do an acquisition before Abbott closes? We are busy looking at everything. The Abbott transaction is great financially and gives us further flexibility.

Gating items on Copaxone approval? Nothing is due from us on the science. Any day we are expecting to hear if there is any other open issue. The hurdles within the FDA appear to be administrative.

Lidoderm application? We are very confident in our Lidoderm application. There is no science issue and no issue with out patch. The FDA is struggling to prioritize their most meaningful applications of this type. They are going through a massive transformation, but it will raise the bar and create a level playing field that will help Mylan long term.

EBITDA guidance? The revenue range narrowing was small enough that we could stay within the prior EBITDA guidance range.

Believes little is likely to happen politically re inversions in the near future, due to the complexity of the effects of any changes.

Agila acquisition business is going very well.

EpiPen, any seasonal factors? Did not see any particular inventory build in Q2, so far the market continues to expand in Q3. Our direct to consumer marketing has been a driver.

Q3 has been typically your strongest quarter, but guidance implies stronger Q4? The Q4 being stronger than Q3 includes the benefits of newer product approvals and the timing of spending throughout the year.

Mylan is committed to its investment grade credit rating and gains leverage from the Abbott acquisition and so is in a position to make other acquisitions.

Pricing of generic drugs in the U.S.? North America business has never been stronger.

What does Mylan look like in 3 years? Look at our generic Advair and Copaxone. Watch us build out excellence in some of the new categories. We see very exciting opportunities for growth.

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