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Mylan Inc (NASDAQ:MYL)

UBS Global Healthcare Conference

May 22, 2013 9:30 am ET

Executives

John D. Sheehan - Chief Financial Officer and Executive Vice President

Analysts

Marc Goodman - UBS Investment Bank, Research Division

Marc Goodman - UBS Investment Bank, Research Division

Good morning, everybody. We're going to started with our next session. I'm Marc Goodman with specialty pharma and large cap pharma at UBS. Welcome, everybody, to the third day. And we're lucky to have Mylan here and John Sheehan, who's the CFO. And so he's going to make a very brief opening comment and then we're going to do mostly Q&A up here. And so -- and I'll take some questions if you want or you could wait. We can go into the breakout session as well, so plenty of time for Q&A. So thanks for joining us very much.

John D. Sheehan

Yes. Thank you. I think I have to -- there you go. Definitely. So good morning, everybody, and I really appreciate the opportunity to be here with you today. I guess, just very briefly, if you don't otherwise know Mylan, we're the third largest global generic pharmaceutical company in the world with revenue of -- in excess of $7 billion and earnings EBITDA of $1.9 billion to $2.1 billion. As importantly, from my perspective, is the growth that Mylan has been experiencing at the top line over the last 5 years, we've grown in excess of 10%, and at the bottom line, EBITDA at 17%, EPS in excess of 30%. So significant growth story as Mylan has capitalized on the opportunities in the global generic space. We are very positive and excited about the future. We see that the growth in generics on a global basis will continue. In particular, over the last year, we have seen the growth in the European generics -- generic pharmaceutical market begin to grow again, which is a significant opportunity for us. Our European operations represent our second-largest operation around the world.

In terms of other areas, we have a significant operation in India. We did announced in February our acquisition of Agila, which is an Indian injectable manufacturing -- R&D and manufacturing company. We will put that Agila operation together with our global commercial operations around the world and really make 1 plus 1 equals 3 in terms of opportunities, and Agila has some of the highest quality manufacturing facilities in the injectable space. They have 6 FDA-approved facilities in India that are regularly inspected without any quality or manufacturing issues.

So those are just a few thoughts in terms of Mylan, and I look forward to answering your questions, Marc, as well as folks from the audience.

Question-and-Answer Session

Marc Goodman - UBS Investment Bank, Research Division

So I think there's probably 2 main topics. We'll talk about a lot of things that are on people's mind. One would be M&A and one would be EpiPen. So maybe we could start with M&A and just your view of the noise that's been going on. I'm sure everybody wants to hear that, so I'll leave that open-ended.

John D. Sheehan

Sure. So the noise, as Marc referred to it, obviously, there's been a lot of speculation in the press and all, and I guess, all I would say is it's been very interesting to watch how the whole situation surrounding Actavis has developed with respect to the Valeant, with respect to Mylan, which we've not confirmed or -- and/or any speculation or -- and now the announced Warner Chilcott transaction. And I guess Novartis was strong in there for a short period of time, too. And I think that from our perspective, it will be -- we'll just continue to watch how this plays out over the next month and I think that will continue to be interesting. So I think at Mylan, just to build on Marc's point about M&A, Mylan has been very focused on building a strategic platform, a strategic global platform. We've done that through disciplined acquisitions in 2010 through the acquisition of Bioniche Pharma, as well as here in 2013, with the acquisition of Agila. We've indicated very clearly that any acquisition that we would make would be required to be accretive to our earnings and could not take us away from our investment-grade credit rating. And those are really the key parameters aside from, obviously, strategic fit and return on investment and all of those things. But just the broad parameters in terms of accretive to earnings and maintaining our investment-grade credit rating would be very important or are critical factors.

Marc Goodman - UBS Investment Bank, Research Division

So you talked about the $4 billion. I guess you mentioned that last fall and now you spent -- or you were about to spend close to $2 billion. So you still have $2 billion outstanding, so we should be surprised if you spend $2 billion tomorrow on another asset, right? I mean, is that fair?

John D. Sheehan

Yes, yes, yes. I think that Mylan, as we've talked about in recent earnings calls, we continue to look at all opportunities and consider all opportunities, large or small. As Marc indicated, in the first quarter earnings call, we talked about having $2 billion of financial flexibility. That is the combination of borrowing capacity that we would have to go up to and maintain our investment-grade credit rating, as well as the borrowing capacity that we come from the EBITDA associated with an acquisition at a mid-teen multiple, I guess, in the 12, 13 range. So we have significant financial flexibility to us and we continue to look at acquisition opportunities. But within the parameters that we have established and, I guess, to answer Marc's question without confirming or denying anything, no, I don't think you should be surprised.

Marc Goodman - UBS Investment Bank, Research Division

And then on EpiPen, is this basically playing out like you thought? I mean, here we are in May and if you kind of lined up your expectations for the year of 30% growth in that business, are we basically kind of right on track and just the noise in the first couple of months was scary to the outsiders, but not really scary to the insiders?

John D. Sheehan

Yes. As we woke up each morning in March freezing and looking at the fact that because of the unseasonably cold winter that occurred in 2013, combined with, very importantly, the unseasonably warm winter that occurred in 2012, what you saw occur what was that the year-over-year change in the script volume for EpiPen was relatively flat and maybe even in some weeks down, and that caused at least the investment community to become very concerned that anaphylaxis has a -- as a disease state that had gone away and there would be no further growth in EpiPen. And really, to be honest with you, nothing could be farther than the truth. We tried during the month of March, early April to point out the weather patterns year-over-year. And I think it's very important that it's the year-over-year impact that was causing what appeared to be a lack of growth of EpiPen. And in the last 3 weeks, as we got into May and the weather warmed up, especially here on the East Coast, lo and behold, EpiPen growth has been double digits this past week, nearly 20% of script growth year-over-year. If I take you back to the first quarter for just a second, if you look at the, I'll call it, the last normal winter we had, which is winter of 2011 and then you look '11 to '12, we had a 25% growth -- in 2012, very warm winter, we had a 25% growth in EpiPen scripts in the first quarter of 2012. And then, now you come to a very unseasonably cold winter in the first quarter of 2013 and script growth was relatively flat to none. You take that average over 2 years from sort of normal winter -- from a normal winter period, what you get is a 12.5% compound annual growth rate over the 2 years, which were just perfect. That's just fine. So I think that you have to look at, quite honestly, the weather patterns. That's what we were focused on. And as I said, now that we're into the warmer weather, what you're seeing is double-digit growth in the market for EpiPen. We're extremely bullish on the product, and we continue with our sales force to promote EpiPen and the benefits of EpiPen for treating anaphylactic shock. And we believe that, that product will continue to be a significant growth driver for the company for years to come.

Marc Goodman - UBS Investment Bank, Research Division

So, so far, it's pretty much on track as you thought?

John D. Sheehan

Absolutely. We, in our year-end guidance in February, we indicated that we saw the Specialty division, of which the EpiPen product is a significant portion of it, the vast majority of it, that we saw that division growing of our -- or is that segment of our company growing 30% year-over-year. And we're absolutely on track for that.

Marc Goodman - UBS Investment Bank, Research Division

I know you entered India directly over the past year. Can you talk about how that's going? And what are kind of the next 1 or 2, 3 countries that you're talking about entering that you're not entering -- not there today?

John D. Sheehan

Sure. So in 2012, we did launch commercial operations in India. We had been operating in India since 2007 through our acquisition of Matrix, Indian ARV, API supplier, as well as high-quality R&D and manufacturing. But we were not in the Indian commercial market. We have -- we began in the Indian commercial markets with ARV products, and we've been expanding our product portfolio in that country with -- and the growth has been exceptional and we're very pleased with the results. Overall, to be honest, to consolidate at Mylan, it's not a significant portion today but there is a significant population in India, and we believe that that's a market that, for years to come into the future, will grow. And so we will incubate that and continue to grow that business in the future. So where -- Marc's question was, where do you go from here? Well, I think one good example and I come back to the Agila -- I'll dovetail this with the Agila acquisition is Latin America. Through -- although Agila was -- the principal focus of the Agila acquisition was to increase our product portfolio in injectables and to acquire the high-quality R&D manufacturing network that they have and to use that, use our commercial platform to sell their products. What we also got out of the Agila acquisition was the investment that they had made into the Latin American, specifically Brazilian market. They have a business down there focused on injectables. But we've been looking for entry into the Brazilian market, the Latin American market for some time. And so Agila provides that entry for us to be able to take our products, product portfolio, in the United States, bring those dossiers down to South America, down to Brazil and to register them in that market and to grow our presence in Brazil through the Agila acquisition. And that's a bonus, quite honestly, that, from my perspective, came out of that acquisition. So I think Latin America -- growing Latin America and Brazil through the -- through this beachhead into Brazil with Agila. I think that, while we are in virtually all of the Western European and Central European countries, continuing to expand eastward as appropriate would make sense. And then also, down into the future -- in the future with respect to, for example, the Chinese market where today we don't have a significant presence. I think that we've looked at what we're doing in India as a template for the Chinese market. We want to be successful in India first, though, before entering into China.

Marc Goodman - UBS Investment Bank, Research Division

So is this move to Brazil now, so you'll have injectables there from the beginning as soon as you acquire the company? Have you already started to file dossiers for your oral pills and things like that?

John D. Sheehan

Yes, yes, yes. So we have not acquired -- the Agila acquisition will close in the fourth quarter of this year, so we're not in a position to file dossiers today. But post the acquisition of Agila, we will absolutely begin to grow that business through the bringing of our commercial products down to that market.

Marc Goodman - UBS Investment Bank, Research Division

And just so I understand China. So China is still a couple of years away. We want to watch India grow first, make sure it works and then you move to China afterwards?

John D. Sheehan

Correct.

Marc Goodman - UBS Investment Bank, Research Division

And Eastern Europe, as you think about that, is that, well, there's a few countries we're not in we'd like to get in? Or is this small, little, tuck-in acquisitions? Can you just talk about greenfield operations, kind of what...

John D. Sheehan

I think we look at -- we both look at organic and inorganic opportunities. We look at everything and would consider both of those things.

Marc Goodman - UBS Investment Bank, Research Division

Yes. There's been a lot of noise about the whole ABC-Walgreens, obviously, a combination and how they want to push back on the manufacturers to kind of squeeze you guys for more money. Can you talk about Europe side of the house and how you're thinking about that?

John D. Sheehan

Right. Sure, sure. We see the Walgreens-Alliance Boots partnership as a win-win situation. We believe that the larger clients are the more benefit they get from a global supplier such as Mylan. And to the extent that Walgreens-Alliance Boots or, for that matter, ABC, as a tangential part of that partnership, to the extent that they increase their volumes with Mylan, we will absolutely be providing them with better prices and allowing them to achieve their goals of the best-priced product in the industry. From our perspective, the win-win is volume for price. And when a customer is providing us with additional volumes, that absolutely creates operating efficiencies, manufacturing efficiencies for us and allows us to provide them with better pricing. So we're very bullish on the partnership. We've had excellent interactions with their leadership teams from around the globe and believe that, that will be a win-win situation for both of us.

Marc Goodman - UBS Investment Bank, Research Division

Just curious about your latest thoughts on the Copaxone opportunity. I always think about this as 2 separate buckets. It's the legal and then there's the regulatory. And I'm curious your thoughts on the regulatory side for really. Has anything changed? Do you feel more confident based on your people's conversations with FDA over the past 2 months, 6 months, whatever it is, relative to a year or 2 ago?

John D. Sheehan

So I don't know if I would use the term more confident. I think we've always been confident. We've indicated that we expect to receive approval with respect to a generic form of Copaxone by the end of 2013. And we have been continuing to work through with the FDA exactly the process that you would expect to receive that approval. So that nothing has changed there. I'd say either positively or negatively, but we maintain our confidence in a generic form of Copaxone by an approval.

Marc Goodman - UBS Investment Bank, Research Division

And what is so magical about year end? Why specifically year end?

John D. Sheehan

I don't think it's really -- actually, to be honest with you, there isn't anything magical about the end of this year. There is, obviously, the interplay as you alluded to a few moments ago about the legal side of it and so that both sides of the equation, legal and regulatory, need to be played out. I'd say that our -- we have been seeking to be transparent with investors as to when we believe we would receive approval for that product. And so it's nothing more than that, nothing magical about it, though. I mean, to be honest with you, if it slips into the first quarter of '14, I don't see any negative -- significant impediment or impairment.

Marc Goodman - UBS Investment Bank, Research Division

And one of the issues has been, will the generic companies need clinical studies, right? And that issue is just -- it's out there and it's just -- it sat there. But it's been really nothing severe. So we feel better that, "Hey, listen, if we needed studies, we would've already been told, like, we're not going to need studies." Do you feel that way or. . .

John D. Sheehan

I really feel that way. To be honest with you, that was a debate that -- there was fair bit of debate on that subject, whether it be by the investment community or bantering between the various companies or constituencies involved in this process. Over the last, I'd say, 1.5 years, I think that, that has dissipated, and quite honestly, as I've consistently said, we've had no indications, no discussions with the FDA with respect to clinical trials and we would be extremely surprised given where we're at in the process with them, if that was to come up at this point. And I think the FDA has also been very clear in the responses that they've had to citizens' petition that they believe that they possess the knowledge and the know-how to be able to judge sameness of product without requiring clinical trials for the product.

Marc Goodman - UBS Investment Bank, Research Division

So as you listen to questions from me, from investors all over, what do you think is still not well understood about Mylan, not well appreciated about Mylan?

John D. Sheehan

I think that Mylan has a demonstrated over the last 5 years the quality of its global platform, the quality of its R&D, manufacturing, commercial teams to execute. If you look at what the management team did by taking the disparate or separate Mylan, Merck and Matrix platforms, integrating them into a single company that has been tremendously successful over the last 5 years, this is a company and a management team that executes, and we will continue to execute. We see significant growth opportunities in the global generic pharmaceutical industry, and we intend to continue to capitalize them. We have, whether it to be our global injectables that we've talked about some today or our biologics platform through our partnership with Biocon or our respiratory platform through our acquisition of Pfizer's R&D platform where we're developing the generic form of Advair and we feel very confident about, we believe that we have in place significant platforms through driving growth into the future. And I don't know if it's misunderstood by investors, but I do think that there are significant growth opportunities that make Mylan an -- has made up Mylan an outstanding company over the last 5 years and we see that growth continuing for years to come into the future.

Marc Goodman - UBS Investment Bank, Research Division

So let's look out 5 years and it's kind of last question before we go to breakout, but look out 5 years for a second and think about what Mylan looks like. So is EpiPen still a big part? Is the U.S. still the dominant player? How do you think about that?

John D. Sheehan

So I guess, I won't -- let me not speculate on inorganic because inorganic, I think, is difficult to speculate on. When you look at who Mylan is 5 years from now, we are the largest or a top player in the global pharmaceutical market. We have brought to market biologic products, especially outside of the United States. We have brought to market a generic form of Advair. EpiPen would have no generic competition, would have -- it would certainly continue to have and we welcome additional players with branded products to increase the awareness about anaphylactic shock that Mylan maintains -- EpiPen maintains the vast majority of the market share. And we're a top player in injectables. When you think about respiratory biologics, injectables, EpiPen, high-margin opportunities, value-add products that make -- that continue to accelerate both the top and the bottom line for Mylan.

Marc Goodman - UBS Investment Bank, Research Division

Thank you very much.

John D. Sheehan

Yes. Thank you all very much. I appreciate it.

Marc Goodman - UBS Investment Bank, Research Division

So we'll go to the breakout session and we can jump more into questions. Thanks.

John D. Sheehan

Thank you very much, everybody.

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