Analyst Conference Summary

generic pharmaceuticals

conference date: February 10, 2016 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2015 (fourth quarter, Q4 2015)

Forward-looking statements

Overview: Emphasized full year growth because, well, revenue sequentially down.

Basic data (GAAP):

Revenue of was $2.49 billion, down 8% sequentially from $2.71 billion, and up 20% from $2.08 billion in the year-earlier quarter.

Net income was $194.6 million, down 55% sequentially from $428.6 million, but up 3% from $189.2 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.38, down 54% sequentially from $0.83 and down 19% from $0.47 year-earlier.

Guidance:

For the full year 2016 revenue is expected between $10.5 and $11.5 billion. Non-GAAP net earnings between $2.525 and $2.725 billion. Diluted non-GAAP EPS $4.85 to $5.15.

Conference Highlights:

Acquiring Meda, which should close by the end of Q3. Meda had sales of about $2.3 billion in 2015. The transaction value is about $9.9 billion, in cash and shares.

Believes Meda acquisition means the $6.00 adjusted diluted EPS target for 2018 can be moved up to 2017.

Revenue growth was impacted negatively by foreign exchange rates.

Generics third party sales were $2.22 billion. By geography: North America $1.03 billion; Europe $616 million; Rest of World $571 million.

Specialty third party sales were $254 milion.

Other revenue was $16 million.

The EPD business contributed $456 million in revenue. This will be the last quarter EPD is broken out.

Non-GAAP numbers: Revenue $2.49 billion. EPS $1.22, down 15% sequentially from $1.43, and up 16% from $1.05 year-earlier. Net income $620.2 million, down 16% sequentially from $733.8 million, and up 48% from $419.8 million year-earlier.

EBITDA was $658 million, down sequentially from $835.7 million, and up 20% from $549 million year-earlier. Adjusted EBITDA was $827 million.

At the end of the year the net debt to EBITDA ratio was less than 2x, so Mylan believes its debts are reasonable.

Cash and equivalents balance was $1.24 billion, up sequentially from $587 million. Long Term Debt was $6.3 billion, up sequentially from $5.85 billion. Cash from operating activities was $602 million. Capital expenditures $156 million. Free cash flow $446 million.

Cost of sales was $1.43 billion, leaving gross profit of $1.06 billion. Operating expenses of $639 million consisted of: research and development $159 million; selling general and administrative $596 million; $117 million litigation settlement benefit. Leaving income from operations of $424 million. Interest expense was $71 million, and other expense was $135 million. Income tax provision was $24 million.

Mylan has about 300 ANDAs pending with the FDA. Believes approvals are simply a matter of time. Optimistic about approvals in remainder of 2016.

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

Q&A:

What kind of organic growth do you expect from Meda? Meda includes Rottapharm, which we looked at in the past and very much like as an asset. We'll be able to use the Meda infrastructure to sell Mylan's current portolio. Topline growth is expected at 3% and EBITDA at 5%.

What about the large premium you are paying for Meda? "We believe the long-term decisions are much more in line when you look at the multiples. They are very much in line for assets such as this scarce high-quality. And so we believe the value really speaks for itself of what we're creating for shareholders and what this combination can do going forward, and like you said, immediately accretive."

Projections past 2017? Over the next 10 years we will be able to maximize opportunities in biologics. We will have an "unprecedented global supply chain."

Couldn't you have taken the Meda money and bought back 40% of your shares, which would have had a bigger impact on EPS? Our philosophy is to grow the top line. That brings more long-term value to shareholders. Also we would not be able to borrow that kind of money just to repurchase shares.

Advair generic? The application was submitted to the FDA in December.

Epipen pricing? Pricing was no different in Q4 than in other quarters. The contracts with payers differ in nature. We believe EpiPen is an important brand, but over time it will represent a lesser proportion of our overall business.

EPD business only up 2% y/y? When Abbott had it, the y/y was declining 4% to 5%. We stabilized it and got it growing in less than a year.

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