Analyst Conference Summary

generic pharmaceuticals

conference date: August 9, 2016 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2016 (second quarter, Q2 2016)

Forward-looking statements

Overview: Solid quarter. Adjusted EPS up 28% from year-earlier quarter.

Basic data (GAAP):

Revenue of was $2.56 billion, up 17% sequentially from $2.19 billion, and up 8% from $2.37 billion in the year-earlier quarter.

Net income was $168.4 million, way up sequentially from $13.9 million, but only up 0.3% from $167.8 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.33, way up sequentially from $0.03 and up 3% from $0.32 year-earlier.

Guidance:

reaffirmed 2016 non-GAAP EPS of $4.85 to $5.15

Conference Highlights:

Acquired Meda in Q3 2016. Meda had sales of about $2.3 billion in 2015. The transaction value is about $9.9 billion, in cash and shares. Mylan continues to see Meda as a rare and valuable acquisition. The funding to finance the acquisition is fully committed. There were some costs due to the Meda transaction during Q2.

Mylan CEO Heather Bresch commented, "This solid performance, which included continued strength in our generics business and double digit revenue growth in our Specialty business, yet again underscores the strategic value of Mylan's diversification and scale as well as our differentiation within our industry. Given our performance to date this year and our current trajectory, we are committed to our 2016 adjusted EPS guidance range of $4.85 to $5.15.

"We also are very excited about the completion of our Meda transaction, as well as the Renaissance topicals transaction that we completed in June, which continue to build on our unique global platform." Mylan now has about 2700 separate products.

Generics third party sales were $2.14 billion, up 4% y/y. By geography: North America $1.01 billion; Europe $604 million with volume up, pricing flat; Rest of World $523 million.

Specialty third party sales were $402.5 million, up 62% sequentially from $248 million and up 33% from $301.9 million year-earlier. Sales of Epipen were up y/y.

Other revenue was $20.8 million.

Remains on track for introduction of biosimilar products. Continued to be engaged with the FDA on generic Advair.

Price erosion in the generic division is tending to run at mid single digit rates per year.

Non-GAAP numbers: EPS $1.16, up 53% sequentially from $0.76, and up 28% from $0.91 year-earlier. Net income $592.4 million, up 53% sequentially from $386.3 million, and up 25% from $474.3 million year-earlier. Gross margin was 56%, up from year-earlier. The wide difference between GAAP and non-GAAP earnings was primarily due to removal of $255.4 million in acquisition related amortization and $174.6 million in other acquisition cost.

EBITDA was $622 million, up 49% sequentially from $417 million, and up 11% from $558 million year-earlier. Adjusted EBITDA was $821 million, up 18% from $694 million year-earlier.

Cash and equivalents balance was $6.36 billion, up sequentially from $1.20 billion. Long Term Debt was $12.8 billion, up sequentially from $6.33 billion. Cash from operating activities was $485 million, but stated adjusted cash from operations as $687 million. Capital expenditures $ million. Adjusted free cash flow $ million. 6.5 billion senior notes issued, while paying off $0.5 billion in older notes that came due.

Cost of sales was $1.39 billion, leaving gross profit of $1.17 billion. Operating expenses of $671 million consisted of: research and development $180 million; selling general and administrative $581 million; $0.1 million litigation settlement benefit. Leaving income from operations of $411 million. Interest expense was $90 million, and other expense was $118 million. Income tax provision was $35 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.

Q&A:

Dynamic vs. smaller U.S. generic companies? Weakness by smaller players could drive irrational pricing, but our customers get larger and more global and need more reliability. Our supply chain is second to none, which our customers value. Our business will be competitive, but not hyper-competitive like 5 years ago, when customers would change just based on price.

Epipen range? We believe our guidance is in a tight range, it takes a lot into consideration.

Epipen cost shift to patients? The payer landscape is changing. We have seen discussion of patients going from a copay to paying the full price. It is from employers' shift to high deductible plans. We do everything we can to insure that patients have access to our product.

Advair confidence in first round approval? Two data points: we have had a lot of FDA interactions including before the filing, and we have seen a huge movement in the last few months.

Stock buy back given cheapness of stock? We constantly look at capital allocation. It is back on the table. Our priority is to delever [given the debt load]. We re committed to $6.18 EPS in 2017.

Copaxone 20 launch? We are anxiously awaiting results. We are confident of getting it. It has been a painstakingly long process. We had one question from the FDA recently, we answered, and we are waiting on them for the next step.

Specialty branded segment prices and volume? We have seen nice growth in volume. We have renegotiated our contracts on a range of products. We are benefiting from that.

Meda EPS accretion in 2017? We will get to our goal a little earlier than we thought. We'll tell you more on investor day. We are very focused on the opportunity.

Epipen inventory in the channel? Inventory is in the normal range.

OTC? We will talk about that in Q3.

The 10Q filed today has a more detailed breakout of the merger accounting and its effect on GAAP and non-GAAP results.

Generic Advair given reports of price reduction of Advair already? When you have an 8 or 9 billion dollar brand product we could not be more excited. And there are barriers to entry. We have great relations with payers, so we are eager to bring our product to market.

Renaisance transaction? We won't break out numbers. We acquired 25 brand and generics on June 15. It will help us be a leader in the derm space.

We now have access on up to 15 biosimilar products and will continue to invest heavily.

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