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Actavis, Inc. (NYSE:ACT)

June 12, 2013 11:00 am ET

Executives

Paul M. Bisaro - Chief Executive Officer, President and Director

R. Todd Joyce - Global Chief Financial Officer

Sigurdur Oli Olafsson - President of Global Generics

Analysts

Jami Rubin - Goldman Sachs Group Inc., Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

All right, I think we should get going. It's 8:00 and my name is Jami Rubin, for those of you who don't know me. And again, really delighted to have with us this morning both Paul Bisaro and Siggi Olafsson from Actavis. And again, timing could not be better on the heels of what was a very exciting transaction. The announcement of the Warner Chilcott deal, and I'm sure you both have a lot of comments to say about that. But just quickly as way of introduction, and I probably don't need to introduce to you everyone is, everybody knows you, Paul, but for those of you who don't, Paul is the CEO of Actavis and has been since 2007. Previously, Paul served as President and COO of Barr Pharmaceuticals and Siggi Olafsson is President of Actavis Pharma, and prior to that, was CEO of Actavis. So and has had various roles in the industry, both pharma and generic. So again, it's a pleasure to have you both here. Thank you very much. Paul, I'm just going to hand it to you to make some opening remarks. Again, I think, as I said earlier today, Warner Chilcott deal was - I don't hear a whole lot of debate about that. It's a fantastic deal both financially, as well as strategically. I know there's a limit to how much you can say, but maybe you could start, kick it off with some of your thoughts and how we should think about it.

Paul M. Bisaro

Sure. Well, first of all, Jami, thank you for having us. It's a beautiful venue and we do appreciate you sponsoring this great event. With respect to the transaction, you're right, it was a strategic deal that had a great financial -- had a number of great financial components to it. From a ...

Jami Rubin - Goldman Sachs Group Inc., Research Division

Oh, okay, I'm sorry. I'm sorry. I screwed up. I have to read disclosures and then Paul I'm going to hand it over to you. We are required to make certain disclosures and public appearances about Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment, banking relationships, compensation received of 1% or more ownership.

I'm prepared to read disclosures for any issuer now or at the end of this call, if anyone would like me to. Now would not be a great time. However, these disclosures are available in our most recent reports available to you as clients on our firm's portal. Paul?

Paul M. Bisaro

Okay, thanks. Anyway, we were discussing was [ph] the strengths of the transaction. If you sort of think back to where we started in 2007, we're watching at that time was principally a U.S. company focused on, on the Generics business. We had a small fledgling, grand franchise restated, very focused on building out our generic footprint, that culminated really with the legacy Actavis transaction. We changed our name at that point to Actavis and gave us sort of a worldwide presence. That stepping-stone allowed us now to then take the step into building out a specialty brand franchise. And circumstances as they are, worked out in a way allowed us to do the Warner Chilcott deal very quickly after the Actavis transaction. And I don't think people need to worry about our ability to integrate. We're -- we'll probably talk about some of the integration issues, but we have very far along in the integration efforts with Actavis, very pleased with the way that's moving. I think the teams are operating very well. We had a great first quarter, we're looking forward a strong second half of the year. But with the Warner Chilcott transaction now, it's continuing the integration effort. Moving onto focusing on the commercial aspects, making sure all of the products get launched in the appropriate way. And I guess the last point I would make about Warner Chilcott is the strategic aspects of this transaction is really pretty fantastic. We have basically overlapping efforts in women's health and neurology. We both call on all the writing neurologists in the U.S. and we both call on majority, if not all, of the significant OB/GYN operations around the world. So we've got -- or around the country, so we've got a really a great, great synergy setup.

R. Todd Joyce

Yes, I think for us, basically it takes the company into the next level because we have the infrastructure, we have 2,500 sales reps outside of the U.S., that's part of Actavis Pharma. We can take the Warner Chilcott line into this sale infrastructure. Remember, in the emerging market, we are not seen as a generic company. We are pharma company. We expand the market when we introduced a product in Russia, CAS, Ukraine, international, any of these markets. We are seen as a pharma company and to add the Warner Chilcott portfolio into those market is revenue synergies, which is not accounted for in the $400 million. So, so exciting times to expand not only the specialty brand side but also on the Actavis Pharma site.

Jami Rubin - Goldman Sachs Group Inc., Research Division

A year ago, Paul, when you were here, I don't know if you remember. But we had a really great discussion? We're down at Nelson's, it was a beautiful sunset, sitting by the campfire and we were talking about sort of the future of the industry and how you saw Actavis. We were watching Last Summer? last summer you were watching, wait, when you saw yourself. And then I just recall, you made no bounds about the fact, within the next 3 to 4 years or so as the industry is maturing, that would have to do a branded deal and we talked about what that would mean. I don't think too many of us expected you to do a deal so quickly after the Actavis, I certainly didn't, and but here we are, and you've done it and has obviously been very well-received. My question is, where do you want to be when you grow up? What is your long-term strategic objective? What is this company going to look that in the next 3 to 5 years?

Paul M. Bisaro

First of all, do you remember the -- I do remember the evening that was a -- there's a very good conversation about that. I think we had facts and circumstance led us to be able to do the Chilcott deal so quickly. But as I think about where the company goes over the next 3 to 5 years, I think it's really sort of a new, not a big fan of the word, but I'll use it anyway, paradigm, in the way we know pharmaceutical companies have to develop. If you want to be profitable and grow the company, your bottom line, the way we've done so the last 5, 6 years and continue to do that, you have to be in certain places, certain markets. You have to be in those markets that are growth markets that have high potential for profitability and our growing their use of pharmaceuticals and that's countries, we've talked about East of Germany, with Central Eastern Europe, Russia, our fastest-growing market, Southeast Asia, big market area for us. But even more established markets like Australia, which is a good market for us. U.K., and but those markets, we don't see ourselves as either brand or generic. We saw ourselves area, as I've mentioned, a pharmaceutical company. We provide the products the people need, whether they're OTC brands, branded generics or whatever the presentation is, we're prepared to supply them. And we have the engine, the capability to develop those products either as generics or as brand. In North America, we see ourselves more as a hybrid company now between a very, very strong Generics business in both U.S. and Canada and a now a very strong specialty pharma business focused on women's health, Urology, GI and Derm in Canada and the U.S., particularly. So I think for us, it's about the growth and over the next 5 years, we want to continue to grow at the rates that been growing because that's what our shareholders want.

Jami Rubin - Goldman Sachs Group Inc., Research Division

So what do you conquer next?

Paul M. Bisaro

Well I think we have some areas that we'd like to fill. We have markets that we'd like to get bigger in. We know that South America is an area we're probably undersized. We have a small operation in Brazil. We need to find a way to grow that. We've got documents for filing. We have assets that can lead to synergies. If we find the appropriate transaction, we know we want to get bigger in Southeast Asia. That's a great market for us. We've got a lot of [indiscernible] available. We don't necessarily have all the commercial infrastructure we nee there yet. Japan is still an interesting market. We've got us -- we've kicked off a joint venture in Japan. So actually, legacy Actavis brought us that joint venture. So we're very keen to move forward on that front. And then Russia, of course, as I said, our fastest-growing market. So I think we've got a lot of opportunities and then you flip it back now to the Specialty Brand side, we talked a long time, Jami, about moving beyond women's health and Urology and now we're presented with a great GI opportunity and the Dirham opportunity, we look to fill up those franchises as well. So I think we've got plenty of work ahead of us and plenty of things to do and plenty of growth opportunities.

Jami Rubin - Goldman Sachs Group Inc., Research Division

So is your escalation to become the next Valeant? and obviously, a deal stock with a very [indiscernible] that is was. Or do you see yourselves as different from our Valeant?

Paul M. Bisaro

First of all, we have very high regard for the folks at Valeant. I think they've done a terrific job for their shareholders. We've done the number of transactions with them. We've found they're very easy to work with and I would expect we'll continue to work with them. I think they have a similar strategy in countries outside of the U.S., as we do. That same strategy, it overlays our strategy, really. They -- Eastern Europe, Russia strategy, Southeast Asian strategy. So I'm we'll be bumping into each other from time to time in those markets. But we see imminent and I can just tell you what we do and sort of figure out how they want it, how they would perceive it. But we believe in strong organic growth that leads to additional opportunities and we use our business development efforts to supplement that. That has always been our case, we've always stated it that way. And we will continue to operate that way. We will continue to spend aggressively on R&D, both generic brand and by similar. And that -- and then, we will use our cash flow and our strong balance sheet to augment that growth.

Jami Rubin - Goldman Sachs Group Inc., Research Division

You don't see ourselves as a serial acquirer?

Paul M. Bisaro

Not really. It just kind of happens that way, but opportunistically, we will continue to.

Jami Rubin - Goldman Sachs Group Inc., Research Division

But in terms of the criteria you use to assess whether it makes sense to do a deal or not, what are the key criterias that you use?

Paul M. Bisaro

The first criteria is, it's got to be strategic. It has to make sense for the business. And if it is strategic then the financial metrics will follow. We -- it sounds like we don't pay attention to financial metrics of course, but we want the right return on investment, we're not going to overpay for an asset and then once we have the asset, we're going to integrate quickly and we're going to take cost out of the system. We want to do all of those things. But first and foremost, it has to be strategic.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Siggi, a question for you. Where are we with the integration of Actavis? I mean again, I think that maybe I was the only one, but I think many of us were surprised that the repetitive that you did another big transformational deal. Again, just off the hills of the completion of the Actavis deal. So where are you with the integration and with this other deal coming so soon, is there any integration issues that we should be aware of?

Sigurdur Oli Olafsson

No, I think we are well underway. Remember, Actavis was a big company. There were 10,000 employees, there were 60 new countries that we integrated, there were 20-plus plants that came in to the networks, so there was a lot of work. The beauty of it is, we started the day we signed the deal in April of last year. So we did a lot of work between April and November in preparing for the integration. We had clean teams and all those in place. We announced the first 4 layers of the company before we closed. So we have the management team in place. Today, the integration of the commercial business is done. There were 7 overlapping markets. In the U.S., there's 1 point of contact, there's 1 team, there's 1 distribution center, there's 1 invoice, there's 1 customer service, it really is a 1 team in the U.S. Same applies to U.K., the Nordics, Poland, Australia, these markets are all fully-integrated. The only market where we are -- need a little bit more time is in France, due to the labor law in France, you need to run 2 separate operations for about 12 to 15 months. We need to offer employees different opportunities. We are going through that. But we estimate before the end of this year, that France, we will have 1 commercial operation in France. On the R&D side, the on-Day 1 due to the clean team, we knew, which products we were going to continue with to be able to take out the synergies of overlapping products, the clean team told us where we were overlapping, which product to continue with. We have announced closure of 3 development sites. 1 site in Florida, 1 site in Malta, 1 site in Greece. Both we have 16 development sites, which was unnecessary for the network, but also because we are have changing the phase of R&D. We are moving from being solid oil-dose cabinet capsule development company into more complex. We alloted Respiratory Development Team in London. We alloted people to the clinical team for clinical endpoint study but we have announced the closure of these 3 sides of the R&D integration is done. The D&A, the back-office corporate, that was all done very quickly. We work from that Finance, HR, Communications,that was done fairly quickly. And then the last piece is obviously on the operations side. Because what you want to do is, you don't want to close any plants. You want to have supply-in-place, a high quality supply. So we obviously, did found -- workout the pretty sync synergies very quickly. Plus over the time, that's why we, didn't include any operation or closing of plants by now. Synergy number, that will come over time. So we are not really, really good place in terms of the integration of Actavis. Last being said that one of ten cups comes in. That's comes in to the Specialty Brand Group. So there's no little overlap the integration work that needs to be done by Actavis, versus what needs to be done on the Warner Chilcott side because the main focus on the integration of Warner Chilcott will be on the sales site in the U.S. and Canada. And on the granted R&D site. Because the rest, the back office, some things like that is relatively simple in behalf of the Operation up and running from the Actavis integration.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Before we get into the nitty-gritty of the business. I just want to ask you one more for the strategic question. Just -- means that I've covered the company, I think your revenues have grown from think your revenues have grown from $4 billion to $11 billion and I really tracked up the number of deals that you have done since then. But it's been a lot and it is all been great. But why won't we become another Teva? I mean, and I don't mean to disrespect Teva, but this is a company that grew very quickly by acquisitions, then hit a brick wall in parts because the acquired companies were not properly integrated. What can you learn from that narrative and why are you going to be different?

Paul M. Bisaro

Well look, I think we always look around the industry. We are 're careful to see what other companies have done. We try to take the best of what they're doing and move forward with that. We have a corner of the market on brains. But we do try to pay attention and as we think about the generic business, we don't see ourselves doing a massive of generic transaction. Again, because we have most of the infrastructure we need. We don't need more R&D capabilities but there are bits and pieces and packets that we would like to get. That being said, I think we know that the industry will ultimately move toward and we want to move our business more to the small molecule development side, so we're going to continue to focus on specialty brands. But then ultimately, we also know that we haven't touched on this yet is that by the end of the decade, biosimilars are going to be a big piece of our revenue stream. And so we have to start doing that work now. We have started with the engine transaction. We have started developing our own capabilities. We have the facility in Liverpool that can do all the gene expression systems that we need to be able to do. We've got the technology. We've got the fire power to be able to do that. And so what we're trying to do is stay ahead of the curve and make sure that we're always moving to where the next opportunity is presenting itself and not try to recreate perhaps old glory. If you will. So stay ahead of the curve and keep growing the business that way.

Jami Rubin - Goldman Sachs Group Inc., Research Division

All right. Other questions from the audience? Okay, I'm just going to keep going, Paul. Let's just focus on the top line. So you now have a company with $11 billion in sales, so 75% of that is in the generic market where in many, very large developed geographies, the business is maturing. How important is top line growth to you and how do you balance a business where a quarter of your sales are brands and the rest is generics. But I think investors do focus on growth in the brand business. So how do you juggle that? What is -- how do you balance a business where brands are becoming important. Generics are still very large. But obviously, there's an index component down on the top line.

Paul M. Bisaro

I think I'll pass over some of these questions to Siggi. But I would say that if you think about -- as we think about our business, we do think about it in 2 components when it comes -- actually, 3. Remember, we have a lot of $1 billion-plus in sales in sales and third-party distribution sales through our distribution company. So you have to sort of make sure you park that off of the sides so to take that out, we're about a $10 billion revenue company and but you're right from a Brand perspective, particularly in the U.S. and Canada, revenue is a surrogate for performance.

Jami Rubin - Goldman Sachs Group Inc., Research Division

On the branded side? Right?

Paul M. Bisaro

But it's not a circuit for performance on the generics side. And I think that is critical and I'll let Siggi take it.

Sigurdur Oli Olafsson

Yes, I think it's important for investors to understand that ,in a way anyone can grow top line in generics, you can give discounts, you basically -- you really could introduce a product that doesn't have a profitability and really, it's simple. So all my management team, every country manager around the world, they're measured on 3 things: They're measured on profit or EBITDA or contribution margin. They're measured on cash flow and they're measured on new products because new products are important for filings and launching of new products because of the end of the day, I measure my team on growth of the bottom line of the profitabity of the business because if we don't do that, you can't run a genric businesses business. It's simple as that. Fully understand the top line is important for the band business. Now this is where we need to educate and maybe do a better job in educating investors and analysts how differently we measure in house the DNA business versus the specialty brand business.

Paul M. Bisaro

And I would make one other observation.And it really sort of -- when you think about the revenue contribution percentages, the way we define specialty brands are right at 75, 25. If we were to take all of the countries that we operate our sales force in like central and Eastern Europe and Russia, we have 2,500 sales reps around the world. If we took those, those are brand sales like other companies do. We would probably more be in the 50-50. Revenue contribution. So it really depends how you treat those countries where you're selling as a brand even though they're generic.

Jami Rubin - Goldman Sachs Group Inc., Research Division

But if you categorize that as 50-50, then investors are going to anticipate maybe at faster top line performance?

Paul M. Bisaro

That's possible.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Right.

Paul M. Bisaro

Yes.

Jami Rubin - Goldman Sachs Group Inc., Research Division

I want to talk a little bit about Warner Chilcott. I guess my question is, having first [indiscernible] from the outside, I didn't first make everyone at Chilcott. But my question is, how did Wall Street gets Warner Chilcott so wrong? Before, deal speculation will stop trading at a 4 mouthful and there was tried a lot of negative sentiments surrounding the name and so. What is it that the industry got so wrong on that?

Paul M. Bisaro

Well, I'm not sure for whatever reason Wall Street fully appreciated the pipeline of Warner Chilcott. And then, once we evaluated the pipeline and we evaluated it in 2 ways. We've talked about this a bit. It's important to understand. We had our brand team come in and look at the pipeline and say, can we sell this products? Is it something that's good? How can we move the needle with that? And then we sent the brand of the generic team and to go and say, "Well, can you blow it up? I mean, that's what we do on the Generics side. We understand how to challenge patents. We know how to deal with movements of products and lifecycle management issues. And so we challenge the business from 2 perspectives and I think we got comfortable that we can grow the franchise. The franchises. But the other piece that, once you sort of look at the Chilcott as of itself, we don't have to step back and say, what do we look like together? And if you take contraception for example, one of the things that Chilcott has been very successful at is moving products from sort of one to a new improvement, to a new improvement and they've been bridging themselves through. And what we've been talking about is we bring to the puzzle, really, an endpoint. We have Estelle, a product for contraception, oral contraceptive product that would be an NCE that we should have approved in the '15, '16 timeframe. And once we get that product approved, presumably, we'll be switching our efforts from this bridging strategy to focusing on that new very solid patent protected product. And so we now think about this asset as a combined asset, not really as a standalone asset. And we've got 25 development products in women's health alone. And we have probably the largest portfolio and the largest pipeline in the women's health of any company out there. So I love the position we're in. Urology, same sort of thing. The [indiscernible], with Rapaflo, these are great assets for us to now put together to grow. We also like the Derm franchise. Again, bridging strategy to Teracyclin [ph] the product, which is an NCE product. SO we're going to try to build out the strategy to get that fully patent protected product that has a 20-year life.

Jami Rubin - Goldman Sachs Group Inc., Research Division

When you think about your future business development activities, how would you prioritize your areas of interest? Is it geographic? Or is it brand and certain other sort of therapeutic categories that would supplement of what you already have? How do think about all that?

Paul M. Bisaro

Well, from a high level, it is both. We're going to continue to build out our Actavis' pharma franchise as Siggi mentioned in the areas we've already talked about. And we're going to continue to build at our brand franchise in the 4 therapeutic categories that we're in and we're going to continue to invest advising with us. Broad spectrum issue, we now have to prioritize within and prioritization comes from 2 things. Opportunities that present themselves and then the ability to integrate. So if I think about what the brand franchise, the brand team is going to be doing over the next 6 to 9 months, they're going to be hedged down, focused on those integrating those commercial teams, the R&D teams, making sure we don't make a mistake with the assets that we just acquired. And so throwing a lot new assets at them would be, probably, not in the right time. It wouldn't be the right time. On the other hand, the , making sure we don't make a mistake with the assets that we just acquired. And so it's thrilling a lot of new assets at them would be probably that time. It wouldn't be the right time. On the other hand, Actavis Pharma has really sort of moved beyond now their ability to absorb new things. As probably that time. So we'll look to accelerate some activities on that front. So it's a really big picture and then making sure we're ready to take on the asset

Jami Rubin - Goldman Sachs Group Inc., Research Division

Talk about that you're seeing with the global Generics business? What are the markets that really excite you right now? And where are markets that are opposing bitter challenges?

Sigurdur Oli Olafsson

I think we're very excited about the U.S. market.

The U.S. market has been very good to us. Obviously, it's due still to the pipeline we have. Remember, we have over 185 ANDA spending. We have 33 exclusive First-to-Files included in this 185, so we really have -- we have settled a few cases, so you can see the growth throughout the next few years. I think investors have started to understand they have given the visibility of the growth of the U.S. Generic business. The price of grocery [ph] in the U.S. is in the low single-digit versus 5, 6 years ago when we were talking about 10%. So overall, business is important to the company. As long as you put in the dollars and doing the First-to-Files, the patent challenges, we have a very, very good position in the U.S. Same applies to Northern Europe. U.K. is a very good market to us. We are #2 in U.K. 13 markets here, we have a fantastic manufacturing plant in [ph] we have a very wide portfolio to offer U.K. We have a very old product that some of our competitors cannot manufacturer and we can supply to the market at the same time. So we have growth -- grown significantly in the U.K. In the Nordics, we have a very strong position, we're #1 in Norway. We were #1 in Sweden, #1 in Iceland, #5 in Finland and #3 in Denmark, so we have a strong position there. We are in injectables and prescriptions. OTC is very strong in the Nordics. We have a pentaline, we have a dermatology line, which we have quite well known for. And then in Eastern Europe, we have been doing very well. Russia, we have that 22 from first quarter 2012 the first quarter 2013, we're introducing new products in Russia this summer. There's a significant investment in the pipeline as Paul mentioned, 550 sales and marketing people on the ground in Russia. Really important market and same for Ukraine and CIS. If I talk a little bit about the market where we have had some headwind, it's probably Germany and Holland, which have been the toughest market for us, these are pent-up markets. They are pent-up driven markets. We are talking about a very low margin, [indiscernible]. And you need to have a lot of supply for example, we have Pantopraxole currently in most of the 10% in Germany and we're talking about the $1 billion tablets of pantoprazole for Germany and Holland. sold in Germany and Poland. So it's a big operation for a relatively small upside. I think on the other hand, in these markets like in Germany, we have had the good injectable business. So not everything is bleak. But also we have been struggling a little bit Southern Europe to grow because the business model in Southern Europe, the prices are going down, but you still need pharmacy sales force to drive the sale. So even though we are growing double-digit on the pipeline as most companies are doing in France, it's very difficult to grow the bottom line at the same pace. So I think that Actavis Pharma business is doing very well. We're very happy with it. But there's always when you have 62 markets to think about, then 62 children to take care of, there's always a few that needs a little bit these a little bit more attention and then the others.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Just to follow up a question, you had made a comment earlier on biosimilars. Will biosimilars do think of that as part of your brand business or your generic business?

Paul M. Bisaro

That's a great question. We're going to have to, right now it's a hybrid. And It really sort of depends on the country that we're speaking about. The U.S. opportunity as it seems to be presenting itself will be a brand-like sale. So we're well-positioned to support that. Our first biosimilar product will be FSH, and we have a female obviously, will be the premier female healthcare company. So we'll be in a good position to sell that brand product from a branded perspective. However, in other markets around the world, it's become more of a tender driven opportunity. And we're positioned in those markets to be able to deal with that. So it is going to be a market-by-market decision. Where we ultimately park the revenue, not sure. But we put it in brands or generics, we'll have to wait and see. Hopefully, we'll create a new category and 3 revenue streams for you to talk about.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Just to stay on the topic of biosimilars, from my perspective, Paul, it seems a number of big players have recently sort of backed off from biosimilars including [indiscernible] and Teva maybe all the hard to tell, Merck have been a big player but they backed off. Pfizer is had made little noise, not so much anymore. But I think bottom line, investors perceive the commitment and focus of biosimilars is being a little bit less so and yet, you are one, you are now one of the partnership and companies that continues to be very focused. Just a couple of questions. How important is when you look at how to grow this $11 billion top line company, which I'm sure by the end of the decade will be much bigger than that then. How important are biosimilars to your growth strategy? And help us to assess how it's going to be? How we should think about it? The time line, et cetera?

Paul M. Bisaro

Well I know, I think, I think first of all, biosimilars are critical to our long-term success. I think for us, not to have the ability to participate in what is going to be the next real frontier of pharmaceuticals, not even next, it is the frontier for our future. We have to participate in it. What we try to do is we approach this very challenging issue is be smart about it. We watch what other people did. We realize the commitment that people were making. We understood that to develop a biosimilars, particularly a monoclonal was going to cost somewhere between $100 million and $200 million, and we said to ourselves, you know what, it's too speculative at this point. Let's go out and look for partners. We did that, we had a very systematic approach to it and we ended up with probably with the premier partner with creative and that's Amgen. And as we go forward now, and we like to bring new biosimilar products into the development portfolio, we're going to have to make another choice. Do we continue with partnership approach? Or do we do them on our own and I think it'll be some combination of both. The challenge of course with the partnership is you're giving up upside. But on the other hand, you're mitigating your risk. Now the other piece of how people sort of pulling back, I think you're right. There's been a recognition that nobody can develop 50 products. This goes to the thesis that we've always had that there isn't going to be a huge number of players in the biosimilar market when the markets develop. That means we think a much higher economic outcome, positive outcome for us. So the things that are starting to align the way we hope they would. Fewer players, number -- that means longer profitability, higher margins, allowing us to recoup this massive investment and also of course, to grow. So we're actually happy with the way things are kind of --

Jami Rubin - Goldman Sachs Group Inc., Research Division

Besides at that age, When do you expect the next big by similar opportunity to take your P&L?

Paul M. Bisaro

Well, that's a good question. We're evaluating new biosimilar opportunities today. I think that the P&L is really hit when the product moves into Phase III and I think you'll be seeing moves in the Phase III. FSH is moving to Phase III. So we're seeing 2 major products starting to hit. So we're going to see some wrap up and biologic spending, not just this year, but next year and the year after that as the other Amgen products start to hit. Anything we start today is probably 2 to 3 years away from a sort of a major, major hit to the R&D line. But in this particular instance, you got to spend money to make money.

Jami Rubin - Goldman Sachs Group Inc., Research Division

We have time for one more question. Any -- right over here, right up in the front.

Unknown Attendee

Can you just speak to the outlook for the capital structure in the next couple of years coming out of the Warner Chilcott acquisition? Factoring and the desire to maintain your ratings and also make acquisitions?

Paul M. Bisaro

Well we've got -- we have gotten that we rating agencies all said that we're going to maintain -- they intend to maintain our ratings through the Warner Chilcott transaction. Of course it helped that we evacuate to do the deal. Although, we're acquiring some additional debt. That is one of the synergies that we haven't included in the $400 million that we've talked about as any improvement in interest rate and the term loan that Warner Chilcott has nor in the term -- the notes that they have in 2014. But over time, I think we're going to continue to keep that 3.5 time that the EBITDA is a soft ceiling and but we also have said and we'll continue to operate in the notion that we want to stay in the 2 to 3x debt to EBITDA range. That gives us, we think enough flexibility to do deals. And if we have to -- if we exceed that 3.5x, we'll do that and then delever back down. The good news is this company, is combined is going to generate a lot of cash. And so we're going to have ability to pay down some debt and we're going to have ability to reinvest and we're going to do both. At some point in the future, if the reinvestment opportunities don't present themselves, then we'll look at other ways to return value to shareholders. But at this point, that's our hope.

Jami Rubin - Goldman Sachs Group Inc., Research Division

And with that, we've run out of time. Thank you very much.

Paul M. Bisaro

Thank you Jami.

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Source: Actavis, Inc. Presents at Goldman Sachs 34th Annual Global Healthcare Conference, Jun-12-2013 08:00 AM
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