Analyst Conference Summary

generic pharmaceuticals

conference date: October 30, 2015 @ 7:00 AM Pacific Time
for quarter ending: September 30, 2015 (third quarter, Q3 2015)

Forward-looking statements

Overview: Strong quarter, still trying to grab Perrigo. But don't you wish you had the $85 per share Teva had offered? I do.

Basic data (GAAP):

Revenue of was $2.71 billion, up 14% sequentially from $2.37 billion, and 33% from $2.04 billion in the year-earlier quarter. Adjusted for currency, up 36% y/y.

Net income was $428.6 million, up 155% sequentially from $167.8 millionbut down 14% from $499.1 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.83, up 159% sequentially from $0.32 and down 34% from $1.26 year-earlier.

Guidance:

Now expects 2015 adjusted EPS to be at the high end of prior guidance of $4.15 to $4.35.

Conference Highlights:

Mylan CEO Heather Bresch said "Our outstanding third quarter results underscore the diversity of Mylan's platform and organic growth capabilities, which allows us to successfully identify and integrate strategic acquisitions and drive sustainable long-term growth and shareholder value creation."

Main focus is acquiring Perrigo. Believes the acquisition will be successful despite Perrigo management's resistance. Spent a lot of time to pursuade Perrigo shareholders to accept the offer by November 12. Described Perrigo as "struggling." [WPM: clearly they are worried that enough Perrigo shares won't be tendered, since they spent inordinate time trying to pursuade]

14 new products were launched this quarter. Working on getting approvals for a variety of respiratory, insulin and biosimilars. Not assuming launch of generic copaxone in 2015.

Generics third party sales were $2.256 billion. By geography: North America $1.08 billion; Europe $629.0 million; Rest of World $546.9 million.

Specialty third party sales were $437.8 milion, down 5% y/y due to lower selling prices for EpiPen. In Q4 Mylan expects to benefit from the recall of Sanofi's Auvi-Q epinephrine injectors.

Other revenue was $19.0 million.

Non-GAAP numbers: Revenue $2.71 billion. EPS $1.43, up 57% sequentially from $0.91, and up 23% from $1.16 year-earlier. Net income $733.8 million, up 55% sequentially from $473.3 million, and up 55% from $462.8 million year-earlier.

EBITDA was $835.7 million, up sequentially from $558.3 million, and up 28% from $652.7 million year-earlier. Adjusted EBITDA was $986.9 million.

Cash and equivalents balance was $587 million, up sequentially from $440 million. Long Term Debt was $5.85 billion, down sequentially from $5.89 billion. Cash from operating activities was $1.13 billion. Capital expenditures ytd $207 million. Free cash flow $1.04 billion. Refinanced debt in the quarter. Has finance facility to acquire Perrigo.

Cost of sales was $1.38 billion, leaving gross profit of $1.32 billion. Operating expenses of $714 million consisted of: research and development $174.8 million; selling general and administrative $537.1 million; $2.3 litigation settlement expense. Leaving income from operations of $601.1 million. Interest expense was $95.1 million, and other expense was $50.9 million. Income tax provision was $26.5 million.

Mylan has about 300 ANDAs pending with the FDA. Believes approvals are simply a matter of time. Optimistic about approvals in remainder of 2015.

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

Q&A:

EpiPen color? Inventories seem normal. There was softness overall in Q3, but volume continued to grow. We have been active to retain our market share. The competition landscape can change. On the whole the future run rate looks bright.

Sustainability of gross margins? Since 2010 grew from 45% to 55%. We have a best in class operating platform. The pricing environment has been positive in North America the last couple of years. We do think margin growth is sustainable, especially as we add more complex products.

Why the focus on the negatives of the Perrigo business? Mylan shareholders already voted to pursue the transaction. We have experience taking assets that were not so great as standalones, and deliver profit growth as part of Mylan. We have shown our ability to really leverage acquisitions. Our customers are becoming larger and global, so our scaling makes sense.

Anti-trust status? We should hear any day.

R&D 2016 expense given branded and biosimilar development? The absolute dollars will increase, but as a percentage of revenue staying steady should be adequate.

Governance model with Perrigo? It is important that the two boards and the shareholders have an open discussion.

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