Mylan Inc. Q4 2009 Earnings Call Transcript

| About: Mylan Inc (MYL)

Mylan Inc. (NASDAQ:MYL)

Q4 2009 Earnings Call Transcript

February 25, 2010 10:00 am ET


Dan Crookshank – VP, Global IR

Robert Coury – Chairman and CEO

Heather Bresch – President

Dan Rizzo – SVP, Chief Accounting Officer & Corporate Controller

Brain Byala – SVP and Treasurer

Rajiv Malik – EVP and COO


Chris Schott – JPMorgan

Rich Silver – Barclays Capital

Randall Stanicky – Goldman Sachs

John Boris – Citi

Frank Pinkerton – SunTrust

Elliot Wilbur – Needham & Company

David Buck – Buckingham Research Group

Marc Goodman – UBS

Gregg Gilbert – Bank of America Merrill Lynch

Ken Cacciatore – Cowen and Company

Ronny Gal – Bernstein


Good morning, everyone. We’re about to begin Mylan’s 2009 fourth quarter earnings conference call. As a reminder, this morning’s call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Dan Crookshank, Mylan’s Vice President of Global Investor Relations. Please go ahead.

Dan Crookshank

Thank you, Melanie. Good morning, everyone. Joining me for today’s call are Mylan’s Chairman, Chief Executive Officer, Robert J. Coury, President, Heather Bresch, Executive Vice President and Chief Operating Officer, Rajiv Malik, Senior Vice President, Corporate Controller and Principal Financial and Accounting Officer, Dan Rizzo and Senior Vice President and Treasurer, Brian Byala.

As we begin, I’d like to point out that as indicated in this morning’s press release, presentation available under live internet webcast, which President, Heather Bresch will be referring to, as she delivers her prepared remarks this morning. So I highly encourage you to access our webcast at to view these slides. In addition, webcast will be available for replay on our Web site for up to seven days following the conclusion of today’s call.

During today’s call, including the Q&A, we will be making forward-looking statements, including those related to our anticipated business levels, our future earnings, our planned activities, our anticipated growth and other expectations and targets for future periods.

Note that these statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Because these statements are forward-looking, they inherently involve risk and uncertainties and accordingly, our actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, the risk factors set forth in our quarterly report on Form 10-Q for the quarter ended December 30th, 2009 and in our other Securities and Exchange Commission filings. You can access our Form 10-Q and other SEC filings through the SEC Web site at We encourage you to do so.

In addition, during the conference call, we will be presenting and referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP measures. It should be noted that non-GAAP financial measures such as adjusted revenues, adjusted gross margin, adjusted diluted EPS should be used only as a supplement to, not as a substitute for or as a superior measure to measures of financial performance prepared in accordance with GAAP.

Please refer to today’s earnings release, which is available on our Web site as it contains detailed GAAP to non-GAAP reconciliations of our actual 2009 and 2008 fourth quarter and full year results, including the allocation of each reconciled item to specific income statement line items.

Before I turn the call over to Robert, let me also remind you that the material in the call, with the exception of the participant questions, is the property of Mylan and cannot be recorded or rebroadcast without Mylan’s expressed written permission. With that I’ll now turn the call over to Robert.

Robert Coury

Thank you, Dan. Welcome, everyone, and thank you for joining us this morning. Before we get started I’d like to say, hello, and once again recognize all of our employees around the world who continue to dedicate themselves to helping Mylan meet its goal of becoming the highest quality and most efficient global generics and specialty pharmaceutical company in the industry.

Time and time again, our employees deliver results that outpace expectations. On behalf of our Board of Directors and our Management team, I would like to thank each and every one of them.

Since I became Mylan’s Chief Executive Officer almost eight years ago, we’ve been committed to a very clear and consistent growth strategy, which is to combine Mylan’s existing strong organic capabilities with external opportunities.

Today, it is very evident that that Mylan has successfully implemented the strategy, as demonstrated by the global platform we’ve created as well as the strong union we have forged between the vision, that vision and the impeccable execution to-date. This ultimately is what’s delivering the solid results and anticipated growth that we are here to report to you today.

Before we look at 2010 and beyond, I’d like to review a few key accomplishments from 2009. First, I am pleased with the very strong fourth quarter results capping off yet another extremely successful year, our second full year of operating the new Mylan.

As stated many times, we knew that 2009 was going to be a year dependent predominantly on tremendous execution, and again, I would like to thank my management team and all of our employees for making that happen.

Our fourth quarter adjusted diluted earnings per share came in at $0.33, a 27% increase over the same quarter in 2008. For the year, we delivered an adjusted diluted earnings per share of $1.30, which is a 63% increase over 2008.

This surge in our adjusted diluted earnings per share represents the highest annual growth rate among our industry peers by a very significant margin, a statistic that we are proud of and a trend that we fully expect to continue throughout the next several years.

In addition, to the impeccable execution from operations, we were able to generate strong operating cash flows throughout the year. Some of the excess cash flows were used to purchase the bulk of the remaining minority interest of Matrix, now a privately held subsidiary and some was used to deliver on our commitment to continue to delever by pre-paying approximately $350 million in bank term loans borrowings that were due in 2010 and 2011. We’re now in a position where we have only minimal long-term obligations due before 2012.

In 2009, we also continued to see the rewards for the hard work and outstanding leadership of Mylan’s best-in-class management team. Heather Bresch was promoted to President and Rajiv Malik succeeded Heather in the position of Chief Operating Officer. These changes, as well as many other promotions throughout our company, continue to reflect the recognition and strong track record of this management team.

We also continue to successfully attract exceptional leaders from outside as well. As you know, today, we announced the appointment of John Sheehan, as Mylan’s new Chief Financial Officer, an appointment that I am very excited about. John’s extensive and broad-based technical knowledge, significant multinational manufacturing experience and his ability to lead large complex international finance organizations, make him an outstanding addition to Mylan.

With that said, I would like to personally thank our very, very strong global corporate finance team for their continued commitment and outstanding performance. This is truly another testament to the strength of Mylan’s overall management team.

In 2009, we also said farewell to our co-Founder, Mike Puskar, who stepped down from the Board of Directors in October. It is my great honor to have succeeded Mike as Chairman of our Board.

I was equally as pleased this past year to be able to appoint Rod Piatt, as Vice Chairman and to welcome Mylan’s newest Board member, industry veteran Mark Parrish.

Mylan was also recognized and rewarded externally in 2009 for its multiple achievements. Our stock price rose 86% during the year. We received positive actions from both independent rating agencies, Moody’s and Standard & Poor’s and we were also named to the Fortune 500.

Looking to 2010, I am extremely pleased to report that we remain on track to deliver adjusted diluted earnings per share in the range of $1.50 to $1.70. This should translate into an industry leading earnings per share growth rate over the 2008 to 2010 period.

This guidance fully incorporates our continued heavy investment into our business, including our biologic strategy. It also includes any potential negative arbitrage in interest rates, as we continue to look at meaningful opportunities in the capital markets to further improve our capital structure, as we look to stagger our debt maturities in a more favorable manner.

That said I fully expect that as we roll forward into 2010, there may be additional opportunities to possibly improve and even further tightening our guidance range.

In a few minutes, Heather will provide you with insight into our longer-term strategic growth targets for 2011, '12 and '13. This will include discussions about Mylan’s unique position from which we’ll be able to control our business by continuing to strategically leverage this powerful one of a kind platform that we’ve created.

Through continuing our outstanding execution, portfolio expansion, additional commercial diversification, operational efficiency and an even stronger balance sheet, I am extremely confident in our projected annual top-line growth rate of 15% culminating with revenues in excess of $8.5 billion by 2013 and a bottom line CAGR of 20%.

I am also highly confident that we will achieve earnings per share in excess of $2 in 2011. With these achieved growth targets, we also expect to generate approximately $4 billion of cumulative operating cash flows by the end of 2013.

Lastly, the most important aspect of our expected growth is that it is predominantly organic and all the work necessary to achieve these results is either already completed or will be by the end of 2010. This is even more impressive, considering that this anticipated growth does not include any M&A activity or any meaningful contribution from generic biologics or our future launch of Copaxone, which could only provide additional upside after the exploration of the 30-month stay in March of 2012.

Let me close by stating that in the eight years I have served as the Chief Executive Officer, I have never been more confident about our industry and about the growth potential for Mylan.

With that, I will now turn the call over to our President, Heather Bresch.

Heather Bresch

Thank you, Robert, and good morning, everyone. As you saw from the very strong fourth quarter and full year results we announced earlier today, Mylan continues to perform at levels that exceed even our own high expectations.

Throughout the quarter and the year, we continued to submit applications, launch new products, grow our customer base and capture synergies and efficiencies. We maintained our focus and executed relentlessly, just as we always have.

Our strong '09 performance should demonstrate our ability to hit our 2010 guidance, while at the same time finding additional opportunities to further leverage our powerful operating platform positioning us to continue delivering outstanding performance in 2011 and beyond.

During my prepared remarks today, which will be accompanied by slides on this webcast, I’ll review our operational results for the quarter and the year, provide you with an updated perspective on our guidance for 2010 and then give you some color on how we expect to achieve a compound annual EPS growth rate of 20% through 2013.

As you can see on Slide #3, Mylan delivered very strong performance in 2009. We generated nearly $5.1 billion in adjusted revenues, about $1.25 billion in adjusted EBITDA and $1.30 in adjusted diluted EPS.

2009 played out much as we expected. During the first half of the year, 180-day exclusivity period, we enjoyed our Divalproex in the U.S. was a major contributor to revenue and earnings growth.

As promised, we maintained solid revenue and earnings results during the second half of the year through numerous product launches around the world and accelerated as well as generated additional synergies. These events complemented our global based business, which contributed to our strong balanced quarterly results throughout the year.

I’d like to echo a comment that Robert makes on every quarterly call, which is that the credit of our success belongs to our employees. So I’d like to take a moment now to thank each and every one of them for routinely going above and beyond to demonstrate that Mylan truly is a world-class generic and specialty pharmaceutical company with an operating platform and a work ethic that is second to none. Thanks to their dedication. Our future has never been brighter.

Moving on to Slide #4, I’ll now walk you through our sales performance by region. Overall, I characterize our results as being solid across the board, underscoring the power and consistency of our diversified global operating platform.

Also noteworthy is that we maintained best-in-class customer service levels, while simultaneously optimizing our supply chain. This allowed us to respond successfully to opportunities created throughout the year by a variety of market disruptions.

Our Generics business in North America continued its strong performance. We generated third-party revenues of $539 million for the quarter as compared to $557 million for the same period in 2008.

New products launched in the fourth quarter in the U.S. combined with our strong base business nearly managed to offset the revenue decrease caused by the loss of exclusivity we enjoyed on Levetiracetam in the last quarter of 2008.

For the year, third-party revenues in North America were $2.1 billion, an increase of 14% over the $1.85 billion reported in '08. Contributing to this growth was the 180 days of exclusivity we had on Divalproex, and increase in synergies, as well as 5% year-over-year growth in Canada.

Our EMEA region hit an all-time record during the fourth quarter. Third-party revenues of $480 million increased $110 million or 30% over the prior year’s fourth quarter. Revenues in the current quarter were affected favorably by foreign currency translation reflecting a weaker U.S. dollar.

On a constant currency basis, operational revenue growth was about 19% year-over-year. This operational growth was led by higher volumes and new launches, such as clopidogrel, which we successfully introduced in several markets, including France and Spain. Both of those markets produced record sales as local currency revenues rose about 20% and 30% year-over-year respectively.

Italy also enjoyed record sales during the quarter, as local currency revenues increased nearly 60% over the year ago period. Responsible were higher volumes on several key products and the favorable impact of regulatory changes on pricing.

For the full year, EMEA performed well. Total revenues increased 1% to $1.65 billion as compared to '08. However on a constant currency basis, total revenues rose 8%. In general, growth was driven by our base business, new launches and improved cost of goods, which continued to offset pricing pressure.

In our Asia-Pacific region, for which the fourth quarter is traditionally strongest seasonally, we again delivered solid results. Total revenues were $271 million, up 36% over '08s fourth quarter results of $199 million. Operational revenue growth accounted for 20% of this increase, while currency effects contributed the remainder.

The operational growth was driven by higher year-over-year local currency revenues in our major business operations in India, Australia and Japan. Our Matrix business had a record quarter due to higher sales of its expanding line of ARV finished dosage form products and third-party APIs for both ARV and other products.

In Australia, we achieved high single-digit local currency revenue growth as an approximate 20% increase in product volumes more than offset the impact of price discount. And in Japan, we saw low single-digit local currency revenue, year-over-year consistent with the pace at which the generic market there continues to expand.

For the full year, total revenues in our APAC region were $882 million, an increase of 10% over '08s results of $802 million. That 10% reflects 16% of operational growth offset by a negative currency effect of 6% as expected. Matrix led the way with accelerating double-digit growth.

And at our Specialty business, Dey, fourth quarter total revenues rose 8% to $87 million. This includes inter-company revenues of $25 million associated with the transfer of Dey’s generic products to our Mylan pharmaceutical subsidiary.

As you know, we launched the new version of our EpiPen Auto-Injector in October. And I’m pleased to report that the product is doing very well as expected, and we are receiving positive feedback on its enhanced design features.

For the full year, Dey’s adjusted third-party revenues were $413 million, a 7% increase over '08s results of $386 million. Excluding revenues associated with the transfer of generic products, revenue growth exceeded 10%, right in line with our original expectation of double-digit growth. Revenues from our Auto-Injector grew almost 10% year-over-year while performance revenues doubled.

In summary, '09 was an outstanding year for Mylan. We produced phenomenal financial results while executing to meet or exceed all of our stated objectives. On Slide #5, looking at our performance for 2008 through 2010, you can see that we truly are reaping what we’ve sown and delivering industry-leading year-over-year growth.

Using the middle of our 2010 guidance as the basis for our calculations, adjusted revenues are rising at a 10% compounded annual rate, EBITDA is coming in at 20% and EPS is growing nicely at 41%. And as I’ll discuss there is still a lot to leverage in our platform, which will allow us to deliver our stated EPS growth target of 20% through 2013.

Before moving on to our longer-term outlook, I’ll touch briefly on our guidance for 2010, which appeared on Slide #6. As Robert mentioned, we are reaffirming our adjusted diluted EPS guidance range for 2010 of $1.50 to $1.70.

Most of the elements of that guidance remain intact, the exceptions being revenue and R&D, both of which we’ve increased as we continue to grow and invest for the future.

We anticipate that the second half of 2010 will be stronger than the first half as we capitalize on the full year effect of hundreds of first quarter launches as well as $120 million of back end loaded incremental synergies.

As you consider our guidance and reflect on our achievements to-date, I trust the key takeaway is that you can absolutely positively depend on us to execute and deliver.

As we’ve stated many times, 2010 is the baseline year from which Mylan will continue to grow. We have an extremely powerful platform, we are fanatic about execution, and we know beyond a shadow of a doubt that we are perfectly positioned to leverage our assets over the years to come. In fact, as you’ll see we are just getting started.

Looking ahead on Slide #7, we intend to build on our industry-leading year-over-year growth by delivering compound annual growth and revenues of 15% and adjusted EPS of 20% through 2013.

We expect this momentum to yield more than $8.5 billion in revenues, while maintaining a relatively stable gross margin and generate more than $2.75 in adjusted diluted EPS. All of this being created organically and while pushing out the launch of Dey’s combo products to 2015. Just a further note, there’s no reliance on any M&A.

Our formula for delivering this performance is not complicated. In fact, it’s very simple and straightforward. We will achieve this growth through a continued execution of what are by now, very familiar opportunities as shown on Slide #8.

Specifically, we will expand our portfolio, keep realizing additional efficiencies, continue diversifying and further deleverage our balance sheet. By staying focused on leveraging the assets we already have, we will continue to control our growth and our destiny.

Moving to the next side, as you may remember we stated that while we were vertically integrating repatriating products and filling our global pipeline, regulatory timeframes did not allow any meaningful portfolio expansion from 2008 to 2010.

Looking ahead, however, we stand to reap tremendous benefits of that work as we enjoy once again the largest pipeline in our history. The approximately 3,000 product submissions we will have made cumulatively by the end of this year represent a key driver of the $8.5 billion revenue we will generate.

In the U.S. alone, we have more than 140 ANDAs pending approval with the FDA, more than 40 ANDAs of which represent first-to-file opportunities. Further, we believe that approximately 1,000 submissions per year and about 500 launches per year represents sustainable run rates for our company.

Turning to Slide #10, we currently have a global supply chain that is second to none, delivering the most efficient high quality products, while maintaining superior customer service. From the beginning, we have continued to accelerate and find additional synergies that will deliver a cumulative annual benefit of $350 million by the end of this year.

We intend to capture even more efficiencies as we continue to leverage our platform. As of today, 50% of our pipeline is vertically integrated. In addition, you may recall that legacy Merck business and licensed most of its products, about 75% of them. We’ve since pushed that figure down to 55%. And by the end of 2013, it will stand at 30%.

As you can imagine the economics associated with these actions are tremendous. When you connect our pipeline and supply chain to the many attractive markets around the world in which we already operate, you really can begin to see why Mylan is and will be the greatest growth story in the industry.

Turning to the next slide, in the largest market in the world, the United States, where we already are a power house we see more opportunity. We fill one out of every 12 scripts written, branded or generic with a Mylan product. We enjoy a 12% share of the generics market overall and we represent the gold standard when it comes to quality and reliability.

Additionally, our products command on average 40% market share. To this, we now add the largest pipeline in our history. Further, we are confident that Dey will continue to deliver double-digit growth, especially as we leverage the market expansion opportunities around EpiPen in the United States and globally, continued growth of Perforomist and additional upside from MSam [ph].

In Europe, on Slide #12, we’re excited about the potential of increased utilization especially in our growth markets. France, our largest market, is increasing generics utilization and we have a 31% market share. Bringing our integrated products into this market and capturing increased utilization will prove very beneficial as it will in our other rapidly growing markets, such as Spain, Italy and Portugal.

Moving on to the next slide, in Asia-Pacific, it’s the same story. We will bring our global competencies to bear as we drive efficiencies while maintaining local commercial expertise. Japan is the world’s second largest pharmaceutical market, but utilization is low, about 19%.

While we rank fourth in market share and are growing from a small base, we believe we will experience accelerated growth as current and upcoming incentives continue to motivate pharmacists to substitute generate products. In Australia, we are maintaining our number one market position and expect utilization rates to continue to increase.

We expect Matrix to continue growing an accelerated double-digit clip. And important force behind the growth of Matrix is our ARV portfolio, which now includes 30 products. Today, nearly, one out of every three people being treated for HIV Aids in those developing world depends on our product.

Moreover, we have pledged to do for access what we have already done for affordability for this devastating disease. All of this drives our commitment to continue diversifying our product mix, geographies and financial profile.

Finally, as described on Slide #14, we fully intend to build on our past track record of delevering our balance sheet. We continue to demonstrate very strong cash flow and look to generate $4 billion in cumulative operating cash flow through 2013. This gives us the ability to keep investing in our business, while continuing to pay down our debt. In addition, we intend to optimize our long-term capital structure, tapping the capital markets opportunistically as appropriate.

I think you all realize that we love to think big and unconventionally, but what really separates us is that we deliver and standing still is never an option. No imagination is necessary to see that the stage is set to deliver our anticipated compound annual growth of 20% through 2013.

Now on this final slide, let’s talk about what we’re doing today to prepare for tomorrow. Our growth drivers for beyond 2013 include Copaxone, which we expect will deliver very robust performance. We continue to expand geographically and introduce new therapeutic categories and dosage forms, such as injectibles.

We also continue to invest today in our biologics platform, which we see as the next big bolus for the generic industry globally. We will consider additional M&A opportunities as we look forward to the 2015 launch of Dey’s combo product as well as other complementary product offerings. I am proud of what we’ve accomplished and truly believe Mylan’s best days are yet to come.

With that I’ll turn the call over to Dan Rizzo.

Dan Rizzo

Thank you, Heather, and good morning, everyone. This morning, I will walk you through our fourth quarter and full year 2009 financial results, our 2010 guidance key assumptions, and then I’ll turn it over to our Treasurer, Brian Byala to conclude by providing an update on the status of our capital structure and liquidity position.

As Dan mentioned earlier, I will, at times, be referring to actual and projected financial metrics that have been prepared on an adjusted basis, which again, are non-GAAP financial measures. We present these non-GAAP measures as they are prepared on the same basis used by management and the Board of Directors to evaluate the performance of our business.

Now, turning back to Slide #3 that details our 2009 financial highlights. As a reminder, the more significant items that are excluded from our non-GAAP adjusted basis results for the 2009 fourth quarter are purchase accounting amortization of $72 million, integration and other expenses of $41 million, net unfavorable litigation settlements of $114 million, imputed interest expense related to our convertible debt of $11 million and the net tax benefit related to the excluded items and tax benefits from internal reorganizations together totaling $135 million.

Please refer to this morning’s earnings release which is available on our Web site for a complete reconciliation from our GAAP basis to non-GAAP financial measures for the 2009 and 2008 fourth quarter and full year, as the nature and amount of the adjustments included in the reconciliation can and do change from period to period.

On to our 2009 results, as you have heard from Heather, our very strong operational execution across the board enabled us to meet or exceed each element of our 2009 financial guidance, which we last updated in October.

Starting with our consolidated top line, total revenues for the quarter were $1.35 billion, an increase of 12% over last year’s fourth quarter of $1.2 billion. Revenues in the current quarter were favorably impacted by the effect of foreign currency translation, reflecting a weaker U.S. dollar.

Translating currency, current year revenues at prior year exchange rates would have resulted in operational year-over-year revenue growth of approximately 6%, while the change in currency rates also contributed 6 percentage points of growth.

For the full-year adjusted revenues increased 8% to $5.1 billion, which is the upper end of our guidance range. Revenues in the current year were unfavorably impacted by the effect of foreign currency translation, primarily reflecting a stronger U.S. dollar. Compared to last year’s full year adjusted revenue of $4.7 billion, operational growth calculated, as I just explained, was 12%, and the negative impact of currency was 4%.

Looking at our operational profitability measures, adjusted gross margin for the quarter was approximately 44% resulting in a full year adjusted gross margin of approximately 46.5% in line with our guidance range.

As anticipated, fourth quarter adjusted gross margin was our lowest of the year, reflecting a seasonally light quarter for EpiPen Auto Injector revenues and price erosion following the loss of exclusivity on Divalproex in the third quarter.

We continue to do an excellent job of increasing the efficiency of our R&D spend and leveraging our infrastructure that has allowed us to keep our R&D and SG&A costs in check, while increasing the productivity of these expenditures as you saw in the submission and launches metrics Heather reviewed.

Adjusted R&D expense for the quarter was $72 million or 5.3% of revenue bringing full year adjusted R&D expense to $250 million or about 5% of adjusted revenues.

Adjusted SG&A expense was $253 million for the quarter and $990 million for the year or 19.6% of adjusted revenues, just below the middle of our guidance range.

Our quarterly adjusted EBITDA was again strong at $312 million in the fourth quarter. This represented our fifth consecutive quarter of generating adjusted EBITDA of $300 million or more. For the year adjusted EBITDA was $1.25 billion. At the upper end of our guidance range and represented a 21% increase over last year’s adjusted EBITDA of $1 billion.

Moving now to a couple of our non-operating financial metrics. Interest expense, adjusted to exclude imputed interest on our converts, was $67 million in the fourth quarter and totaled $276 million for the year, essentially in line with our previous full year projection of approximately $280 million.

Our fourth quarter and full year adjusted effective income tax rates came in at 30%, in line with our October projections. In total, these metrics draw strong adjusted net income and adjusted diluted earnings per share.

For the fourth quarter, adjusted net income was $143 million, an increase of $23 million or 19% over the $120 million for the same period a year ago. Adjusted diluted EPS was $0.33, an increase of $0.07 or 27% over last year’s fourth quarter adjusted diluted EPS of $0.26 and $0.01 stronger than the third quarter of this year demonstrating our ability to maintain our earnings momentum.

For the full year, adjusted net income totaled $583 million, which exceeded the upper end of our guidance range. Adjusted diluted EPS totaled $1.30 representing an increase of $0.50 or 63% over last year’s $0.80.

Contributing to our adjusted diluted EPS during the quarter was the effect of a lower if converted shares associated with the Company’s mandatory stock as a result of the strength of our stock price.

Turning to our cash flow metrics, once again, we produced strong cash flows from operations. For the full year, cash flow from operations were $605 million, which despite including approximately $52 million in net after-tax cash outflows during the fourth quarter related to the DOJ legal settlement, came in near the upper end of our guidance range of $550 million to $625 million.

Additionally, after a particularly robust fourth quarter, spending on capital for the full year totaled $170 million in line with our most recent full year forecast.

In summary, we had an exceptionally strong finish to a very successful year on many fronts, building up strong momentum as we enter 2010.

Now, turning back to Slide #7 that details our 2010 guidance. Heather has already provided you with the update to our guidance for 2010, our baseline year from which Mylan will continue to grow.

Before turning it over to Brian, I would like to share the details of some of the assumptions that underlie this guidance, some of which have changed. First, the mid-point of our unchanged 2010 47% to 49% adjusted gross margin guidance range reflects a forecasted expansion of about 160 basis points from 2009, largely as a result of a benefit of our ongoing synergy and operational efficiency programs and our API and FDF vertible integration efforts that Heather detailed earlier on a continued strong product mix.

Continuing this trend, the mid-point of our SG&A as a percent of revenues represents a 60 basis point improvement as we further leverage our infrastructure and keep our SG&A costs in check while increasing our productivity.

With respect to Paragraph IV opportunities, these opportunities, as we said last year, are not a significant element of our 2010 guidance. On the currency front, the FX rates used in our 2010 guidance and our growth targets approximate current market conditions.

We continue to forecast 2010 interest expense net of the imputed interest on our converts to be in the range of $280 million to $300 million. This range considers the potential for higher short-term interest rates and potentially a higher level of interest expense should we opportunistically execute a long-term financing transaction during 2010.

With regard to income tax, we are now assuming an all-in adjusted effective income tax rate in the range of 28% to 30% over the 2010 to 2013 period versus 30% in 2009 due to the benefit of additional anticipated tax planning strategies.

And finally, two important cash flow metrics. We expect 2010 operating cash flow to be in the range of $725 million to $825 million, almost 30% higher than our strong 2009 based on the mid-point of this range. We project our investment in capital to be around a $250 million run rate for the next several years as we continue to invest in our global perform.

Now, let me turn the call over to Brian for an update on our capital structure and liquidity position.

Brain Byala

Thank you, Dan, and good morning, everyone. As we reported over the last several quarters, we continue to be in great shape from a capital structure and liquidity perspective and our position continues to improve with each passing quarter. Thanks to our strong operating cash flow throughout the year.

We invested approximately $340 million related to capital and business acquisitions, including purchasing the bulk of the remaining minority shares of Matrix. We prepaid approximately $350 million in long-term debt maturities and we paid $139 million in preferred dividends.

Notwithstanding these cash outflows that aggregated approximately $830 million, we still closed the year with over $400 million in unrestricted cash and marketable securities.

As a result of the previously mentioned debt pre-payments, we have no meaningful long-term debt maturities until the first quarter of 2012. And from a covenant perspective, the level of our senior secured debt is approximately 2.7 times our last 12 months covenant basis adjusted EBITDA, which is well below our December 31, 2009 covenant threshold of 4.0 times and also comfortable ahead of our December 31, 2010 threshold of 3.5 times.

As you already heard from Robert and Heather, we’re targeting compound annual earnings growth of 20% for 2013 and expect to generate approximately $4 billion internal operating cash flow in 2010 through 2013.

This projected strong cash flow provides us with substantial flexibility to continue to invest in the growth of our business, while at the same time meet the approximate $1 billion in debt payment requirements though 2013, potentially on an accelerated timetable.

In addition, we expect we will have opportunities to accelerate prepayments of our 2014 debt schedule, and as Dan just mentioned, also look for us to opportunistically go to the capital markets to refinance a portion of our term loans to continue to further optimize the maturity profile of our capital structure.

Lastly, let me remind you that our mandatory convertible preferred shares will convert to common stock in November. Not only will this eliminate our $139 million annual dividend commitment, but will also result in the largest market capitalization in the Company’s history at recent stock prices well in excess of $8 billion.

I’ll now turn the call back over to Dan to start the Q&A.

Dan Rizzo

Thank you, Brian. Melanie, we’re now ready to open the line for questions.

Question-and-Answer Session


Thank you. (Operator instructions) We’ll take our first question from Chris Schott of JPMorgan.

Chris Schott – JPMorgan

Great, thanks. When I think about the, I guess roughly $3.5 billion of incremental sales you’re anticipating by 2013 relative to what you did in 2009. How should we think about that being split between your three primary regions right now? And how do you see your geographic mix I guess shifting over that timeframe?

Heather Bresch

I think a couple of things. Certainly, as we talked about in '09 and '10, talking about just the voluminous amount of launches that we had coming from the pipeline. So we’re still on track in '10 to deliver over 500 launches really coming from all regions. So several hundred in EMEA, we have the 50 to 60 in United States, we have the 50 to 60 from the Asia-Pac region, so really a nice mix. And we see that mix just continuing the sustainability of that 500 launches over the longer-term as I mentioned we really believe as a run rate.

So I think that it’s that coupled certainly with the statistics that we talked about from the vertical integration, the repatriating of our products, that’s leading to that efficiencies in our cost of goods. So, when you think about the $8.5 billion that we’re projected by the end of 2013 coming from really what’s already built and will be built by the end of 2010 in our pipeline.

Robert Coury

But, Chris, let me just add. If you did look at a pie chart today, and how that pie chart would be broken up, clearly, the North America region is the hundred-pound gorilla. But, if you look at that pie chart in 2013, North America will not be as large. They’re still going to be large, but definitely, there’s a more diversification anticipation that we projected through the 2013.

Chris Schott – JPMorgan

Okay, great. And I have just one follow up question. I know M&A is not included in this guidance you’re giving out today; but I guess with Merck and Matrix integration kind of nearing completion as we go through 2010, I guess at what point do you start looking to pursue additional acquisitions? And when you think about that, I guess what are the kind of key markets you’d be targeting and way if you were to look at these, these are even generally smaller transactions or just how do we think about that piece of the business over the next few years?

Robert Coury

I’ve made a commitment to the shareholders and our stake holders not to interrupt this massive growth rate that we’ve anticipated all along. And I’ve asked those shareholders to stick with us and I will not have any disruption. We see that we’ve delivered; we’re going to continue to deliver. I think the first thing we should ask ourselves, do I need anything else that’s out there? And I’ve said this many times. I just don’t see anything else out there that we would need that would further enhance our strategic and operational capabilities. We have everything you would ever want in this industry on board right now.

And when you take a look at the growth for just what we already have, certainly, if I did look at anything in the future, it’s not going to be anything that’s going to be strategic and certainly, not dilutive, I don’t want to interrupt the earnings momentum that we have right now, but do I see like a bolted on? For example, I think the simplest way to look at the opportunities I’m going to look at. I think when Teva gave their presentation; they said they were going from 22% market share to 35%.

If you look at that 22%, you’ll see that growth. I think in North America alone, we were at 7.8%; they were like a 7.6% market share in North America. If you take a look at that growth rate, you’ll find that there was 10.8% of market share that they included on products that we did not have yet. So, if you can just imagine what we’re going to focus on, we certainly built this platform of scale. You should just be thinking about those therapeutic categories that 10.8% share that they have, we don’t have yet and you should expect us to layer those in as we go along. That’s more of the kind of activity I think you should anticipate from me going forward rather than a need for some huge acquisition.


Next we’ll go to Rich Silver from Barclays Capital.

Rich Silver – Barclays Capital

Hi, Robert.

Robert Coury

How are you doing, Rich?

Rich Silver – Barclays Capital

Good. Just on the 2010 guidance, we’re finishing 2009 gross margin of 44%, you had 46% in the third quarter and obviously, the first half had a higher margin because of generic Depakote. Can you give us some sense of how you get to a 47% to 49% range if there aren’t any significant first-to-file and what would be driving that gross margin to that higher level?

Robert Coury

Yes, thank you. First of all, Dan actually did a real good job in addressing that, but I’m glad you’re giving us an opportunity to go through that again. As you can see, the continued momentum that we have with the cost of goods and our ability in the strong number of launches, new launches that we have, and the continuation, as Heather mentioned, about two-thirds, we started out with Merck when we acquired them, two-thirds of their business has been outsourced. We’re now down to 55% from the two-thirds that they had and we see that momentum continuing throughout 2010 and further improving that gross margin as we go along.

And also as Heather said, Rich, and I would caution all of you in terms of your modeling, we are sliding into '10, just look as slide into '10. As she mentioned, expect the back half of '10 to be better than the first half of '10 simply because if this continued momentum as we go from fourth quarter '09, slide into '10 and the continued momentum that we had now for the last several quarters, all continue to materialize. And you will see an upswing towards the latter half of next year both the voluminous amount of product launches, we expect to get in the second half of the year and the continued improvement that we will have in the cost of goods and the synergies that ought to roll in.

Rich Silver – Barclays Capital

And one follow-up on share count. Can you give us some sense of share count in 2010, and how we should be thinking about that in the out years?

Robert Coury

Yes. Brian, what do we have? Dan, about 405, if you take a look at fully diluted?

Dan Rizzo

We’ve assumed in our guidance in '10 and the out years that the mandatory preferred will convert into about $125 million in November of 2010. And then left it reasonably stable, upped it a little bit for anticipated stock price with the total.

Brain Byala

The base is $306 million plus the $125 million.

Robert Coury

$306 million plus $125 million.

Dan Rizzo

$430 million, $435 million as the starting point.

Robert Coury

Yes. Okay.


Next we’ll go to Randall Stanicky from Goldman Sachs.

Randall Stanicky – Goldman Sachs

Great. Thanks, guys for the questions. Just to go back against the top-line guidance, clearly, above recent trend and better than peers so, maybe Robert I’ll just ask, can you help us understand maybe growth by region just directionally? And then in the U.S. obviously, you referred to market share opportunities. So maybe can you help us understand which product categories, obviously generic oral contraceptives stand out, but are there other areas that we should expect you guys to be coming in on?

Robert Coury

For surely, you should be expecting us to come in, in other areas as I mentioned. And again, focused on that 10.8% of market share we do not yet have. That will be our focus. But, Randall, I would tell you that again if you look at the pie chart, we definitely see growth in Europe with increase in generic utilization, definitely. And the sheer number of product applications that we put in, I think Heather mentioned almost 3,000 submissions certainly by the end of 2010, and there’s a voluminous amount of that in the EMEA region.

And then of course in Asia-Pacific, we’re looking at Asia-Pacific, albeit small, Randall, right now, and not material. We do see growth in the Asia/Pacific, but I’d say more growth in the European region. And please I don’t want to take away from North America. It doesn’t matter that we have what 75% I think we heard at the GPAJ, now according to IMS generic utilization. I have to tell you, with 10.8% of market share that we don’t yet have in our portfolio, you can rest assured as we layer those products in, and I fully expect to get that similar market share that we enjoy today with some of our competitors. So, I do see a lot of opportunity here even in North America. Heather, do you want to add anything?

Heather Bresch

Yes. And I would just remind you, Randall, that we’re still seeing accelerated double-digit growth from both Matrix and Dey. So as we have factored in all of these things, it is really we’re seeing contributions from everywhere. And like I said, we still see a lot of upside today as well as our ARV franchise out of Matrix.

Randall Stanicky – Goldman Sachs

Heather, did you update us on the number of launches in the U.S.? I know you’d given us that figure before including the number of high value for 2010?

Heather Bresch

We’re still on track. I had mentioned about 12 limited competition launches and our overall launches being around 50. So, we’re still track to meet that in the United States.


Next we’ll go to John Boris with Citi.

John Boris – Citi

Congratulations on the quarter and thanks for taking the questions. First has to do with the tax planning strategy that you’re going to deploy going forward obviously looking for 200 basis point improvement on the tax rate. Can you just take us or help us understand what’s going on there to lead to that improvement? And then how you see that rolling out between the '10 to '13 period? And then I have a follow up.

Brain Byala

Sure. Don’t want to go into specific details, but we’re a global company, and as a global company we have opportunities in order to put tax setting in order to optimize our tax structure. But, we were simply a U.S. company that much more limited planning we tend to.

Robert Coury

But just to add on top of that, John, let me just say that when I tell you that we expect a lot of that growth to come from a lot more in some of the other regions outside of North America, consistently, that should tell you a little bit about how we intend on improving our overall marginal tax rate. And that’s again consistent with where we see our top line, where the growth from our top line is coming as well. But there’s always a balance there. We certainly want to do better in North America. And as we continue to do better in North America, there’s always that trade-off with that tax rate dependent upon where that volumes coming from. But that’s kind of sort of where we are.

John Boris – Citi

Okay. And then just one for Heather. I guess back to the 12 high value launches for this year, I think you had targeted six in 2009. Can you just take us through what those products were? I think there’s still a couple remaining that are you anticipating that they could be pushed into 2010? And does that kick that number from 12 up to maybe 14 or 15 in light of not getting products approved in '09?

Heather Bresch

We, John, actually hit the six for the second half of '09 and obviously, like I said still on track for the 12 for 2010. I didn’t call out everyone. I can tell you that we had everything from Lansoprazole which as you know continues to be a nice product for us, Liothyronine, Clindamycin, where the ones that kind of came in the fourth quarter. So we did end up hitting the six. And like I said, our number is still 12 for 2010.


Next we’ll go to Frank Pinkerton from SunTrust.

Frank Pinkerton – SunTrust

Hi, great, thanks for taking the question. Can you just make a comment between now and 2013; we’ve seen I guess some changes in the pricing dynamics in different countries, major countries where you have sales around the world. And what are some of the thoughts and assumptions that you’re making for price changes and pricing pressure overall in the generic industry in that guidance?

Robert Coury

I can only tell you that a continuation of price reductions in every single market that the healthcare systems around the world can achieve. And I would say that we’re fully expecting that continuation. But, what we’re doing, we’ve said this all along. Our race is to make sure that we drive our cost of goods down and hopefully, quicker than our ability to have to absorb these price reductions.

So, our strategy has always been about yield and optimum efficiencies, and we think that there’s still more of those efficiencies to be had. And so we think that our operational efficiencies with this massive platform that we now are operating is the mitigating balancing act of the continuation of price reduction around the world.

Frank Pinkerton – SunTrust

Okay, great. And then you made a comment that from strategic standpoint not a whole lot of assets you’re looking at to acquire, but can you make a comment from some of the in-house technologies that Mylan has, things like the Auto Injector and how do you push that to other products, things like the patch technology and how you push that to other products and will that be any part of significant growth in this 2013 strategy? Thank you.

Robert Coury

Yes. And thank you for that question. Absolutely, positively those are incremental growth opportunities for us as we see forward. The beauty about where we’re situated today compared to our concentration, say, in the last couple of years, I do believe we have that breathing room right now to really laser focus now on some of the opportunities that you’ve mentioned and to further enhance them, which I do believe will be incremental to what we’ve already delivered to you here today.


Our next question will come from Elliot Wilbur from Needham & Company.

Elliot Wilbur - Needham & Company

Thanks. Maybe just a couple of detailed questions around your longer term revenue guidance, specifically, with respect to price erosion in the U.S. market. Is it safe to assume that your expectations embedded roughly kind of a mid single-digit erosion rate. And then I know you mentioned Paragraph IV as not being a major component of that growth, but historically you’ve talked about sort of using roughly a 50% probability of success in your internal modeling. I just want to make sure that your numbers do include your entire P4 pipeline and that’s roughly the rate of success assumed.

Robert Coury

Yes. I can have Heather address a little bit more in detail in terms of the Paragraph IVs, but again, let me be clear about if each region is modeled a little bit differently. In the United States I would have to tell you, with all due respect, a lot of the external dynamics and external environment that we see within the industry is I believe we’re certainly benefiting from. I believe that our customer base has a significant higher appreciation for high quality, high volume producers. And so, I do see more of that in the United States in terms of single-digit pricing reduction, which has been consistent in our models, offset again by the significant further appreciation more to say a platform like Mylan as a reliable quality supplier.

In Europe, we are relying substantially on a continuation of rightsizing that infrastructure as markets continue to move towards a different kind of a distribution system, whether it’s tenders, so we have enough mitigating cost opportunities over there that we believe we can keep pace with where we see the European market going. But, more importantly, in Europe, we see a significant increase in generic utilization. And it’s through our ability to capture those additional volumes. That’s another mitigating factor we see in the European region.

In the Asia-Pacific region, as you know in 2008, Australia already went off the cliff completely in terms of changing its whole healthcare system from a more of a brand generic to more of a commodity type of distribution. We’ve now settled in 2009 there. We’re now rebuilding from a new baseline in Australia. And in Japan, all I could tell you is that even though we’re, I would say, not material today, I do see a substantial opportunity in Japan for increased generic utilization. And Heather, do you want to add anything on the Paragraph IV side?

Heather Bresch

Just that our assumption is same as you stated. We’ve said there is nothing significant in 2010, but we still do the 50% probability weighted and account for an authorized generic.

Robert Coury

Next question.


We’ll take our final question from David Buck of Buckingham Research Group.

David Buck – Buckingham Research Group

Yes, thanks for taking the questions. First, on the U.S. business, can you talk a little bit about the two factors? One you touched on a little bit, Robert, the supply disruptions in the market, what the impact was in the fourth quarter and what the expectation is for 2010 in terms of pricing? And also what’s your view on how the FDA backlog has affected Mylan, if at all? And what’s the expectation as you look into 2010? And then one for Heather, just can you give us some sense of why the back weighting of the synergy, the $125 million, what’s the drivers are there? Thanks.

Heather Bresch

Okay. So maybe I’ll start with first on the FDA question. We have seen our timeline definitely been pushed out. I would still say we’re definitely ahead of the market industry. So, we’re still above the averages that FDA is putting out there as far as their approval time. But, we have seen some delay and we’ve accounted for that in our modeling assumptions as well. I’m sorry what was the first part of…

Robert Coury

David, can you repeat your first question?

David Buck – Buckingham Research Group

Sure. Just the supply disruptions that we’re aware of –

Heather Bresch

Yes, the market disruptions, I would say, as you know, we still see everything from the companies, the recall situation, companies still not back in the market. So we have definitely seen some volume uptake. I will tell that I had said in Q4 it was not significant. I think that as we see the year go on, as people stay out of the market, that it certainly will have a positive could have a positive upside. We’re being very strategic about the opportunities that are in front of us. And I think though, as Robert always cautions there, we absorb a lot. So, while we take a lot into consideration, as you know, there’s a lot of ups and downs that we look and take all that into consideration, so.

Robert Coury

In terms of the synergies, Dave, in terms of the back end rollout, this is really not a new story, Dave. If you watch kind of sort of how the synergies have been rolling in, it’s a continuation and a buildup. It’s happening almost like clock work and you should expect more of that more towards the back end.

And the fact of the matter is, I said a while ago, we didn’t see it ending, we saw it, we might even exceed the $300 million. I think you see that now and I don’t see it stopping. I just don’t see the end in sight. Because what we’re doing is really managing the business appropriately, not trying to upset the balance throughout our region, but making sure that we’re right-sized for what the market calls for any particular time, but the work that’s been done in the past, all of the things that Heather has put in place is really rolling out exactly the way we predicted and that’s why I caution, as we go into 2010, we’re going from '09, slide into '10, and you should see a continuation of the growth in 2010.

Heather Bresch

And I think that the '09 story played out just that way.

Robert Coury


David Buck – Buckingham Research Group

If I could just ask a follow up on Merck generics. You mentioned the percentage of outsourced product is about 55%. Are you referring to outsourced API or just actually outsourced product?

Robert Coury

This would be finished dosages. One of the benefits we saw, David, when we acquired Merck was as strong as that business was actually, David, two-thirds of that business was done by in-licensing dossiers and reselling them in the markets through other third-party manufacturers. What we brought, the natural complement we brought at Mylan, with Matrix especially, was our ability to bring all that external activity inside, internally and to yield through the integration those efficiencies that you’re now seeing rolling through our numbers exactly as we predicted. And we see more of that to come over the next few years.


Next we’ll go to Marc Goodman with UBS.

Marc Goodman – UBS

Heather, can you give us a flavor for in France and Australia? What type of price cuts you think are going to end up going through the governments there?

Heather Bresch

We always say I won’t try to predict what the governments are going to do. Starting with France, things over this past 12 months as we look into now into 2010, I will say that they’ve been in line with our expectations and what we’ve accounted for. There’s nothing that leads me to believe there’s something coming into place that we’re not accounting for. As you know they look annually and have a different way of negotiating especially once if the products on the repertoire list. So, all I can say is, in 2010, I don’t see anything that we’ve not anticipated for in France.

As far as Australia goes, they’re in the midst of the government contemplating what they’re going to do for the next year. So, I really don’t see 2010 so much as the fact that we’ll have to wait and see how the dialogue transcends through the summer and if there would be any adjustments for 2011.

Marc Goodman – UBS

So in France, are you kind of assuming maybe just a 5% type hit, nothing material?

Robert Coury

I would say, without getting into percentage, certainly, we are assuming a reduction. But, yes, we fully accounted that in our guidance. In Australia, I just don’t see a material change given the significance of what occurred in 2008. In fact, we rebased ourselves in 2009.

Marc Goodman – UBS



Next we’ll go to Gregg Gilbert with Bank of America Merrill Lynch.

Gregg Gilbert – Bank of America Merrill Lynch

Thanks. First for Heather, any updated comments on your Solodyn and guanidine applications and whether or not you’re a filer on Toprol XL? And then for Rob, beyond continued execution of what’s on your plate and maybe some small bolt-ons along the way, what are the next big steps and mounts evolution that you’re thinking about today that may occur a few years out or need to occur a few years out? Thanks.

Robert Coury

Let me answer the last question first, because the whole world would like to know what’s on my mind, Gregg, and I’m not ready to tell the whole world yet what’s next. Heather?

Heather Bresch

And as far as Solodyn and guanidine, I would just say that we feel very good and confident about our applications and I can’t really say anything more to timing on that. But still very good about where they are. And as far as you know we don’t talk about any of our other applications that aren’t in Paragraph IV litigation.

Gregg Gilbert – Bank of America Merrill Lynch

Thanks, guys.


Next we’ll go to Ken Cacciatore from Cowen and Company.

Ken Cacciatore – Cowen and Company

Hi, thanks, guys. Question, Robert, you see large pharma constantly talking about going and, in fact, running to emerging markets and using a bit of a generic strategy. So just wanted to get your thoughts on what they’re looking at, if you’re looking at the similar things?

And earlier in the call, you talked about being very focused on deleveraging the balance sheet, which I appreciate, and certainly, so much changes in a year from where we were a year and half ago to where we are today. But I’m wondering if that mindset, given how well you have performed and the cash flows are coming through; maybe if that mindset is locked still back a year and a half ago?

And then as you have so many of your competitors looking at the assets available, you said you don’t need anything, but it seems like there’s a land grab going on, and so maybe if we’re holding on too tight and there are opportunities that you should be pursuing.

Robert Coury

Sure. First of all, in terms of the big pharma, Ken, I actually welcome, and I say this with the largest open arms I could possibly tell you, I welcome big pharma in the emerging markets because it’s just like the brand business, I’ll use their language. There’s nothing more powerful than shared voice.

The more voice, the more increase, the more I have the reps out there talking about generics, the more increased generic utilization you can expect. I think that big pharma coming into the generic sector in these emerging markets is only going to accelerate much quicker the increase in generic utilizations. The only thing they have to watch for obviously is how that might bite the remaining portion of the brand aspect of what they have left. So from our perspective, it is beyond welcome. I’ll take all the share voice I can get.

And in terms of my mindset, this I can give you. And I said this I think in the last conference call. When you go from no debt to $8 billion of debt, eight times debt to EBITDA with a commitment to delever, which we did when we raised the $3 billion and then we went I think around the six times debt to EBITDA and made a commitment to go down to three times debt to EBITDA. And I hate debt, Ken. I hate it.

I have to tell you, I am extraordinarily, now that we’ve matured with the business, now that we’ve kind of grounded ourselves, now that I see things in the strength of the platform, understand it, lived with it, managed it, I am beyond extremely comfortable with a three to one debt to EBITDA ratio. And so, if you look at that as an optimum three to one, could I live with two and a half, yes, of course. But three to one debt to EBITDA is, I would say that line that I am most comfortable based on what we’ve built today and I think it is the optimum capital structure really for our Company as I see it.

Ken Cacciatore – Cowen and Company

Okay. And then if I could, just one thing that we constantly observed is the UK market for everyone seems to always be very difficult and tough. And I don’t know if you all agree with that. And as U.S….

Robert Coury

An understatement.

Ken Cacciatore – Cowen and Company

Okay. So as a U.S. centric analyst we see that market and we see it’s tough and awful and nasty and wondering why. And I think you’re hearing it from a lot of the analysts asking the same questions, why that nastiness doesn’t spread throughout the European region at some point in time, these governments kind of all start looking at that model seems to be the most advantageous in terms of cost. I would ask it even more directly, why won’t you case spread?

Robert Coury

It’s a lot easier said than done, Ken. You can’t look at just one aspect of the market; you got to look at the whole distribution, the whole food chain. And you can’t just flick a switch and apply some statement over all these countries when there’s really a lot more involved logistically than just simply the end result of what the UK is dealing with. But I think you have seen a lot of the countries trying to move to more efficient markets, more efficient ways of distributing. I think Germany is a great example. I think you used to be able to not even do business in Germany without a sales rep. Today, the sales reps could be a thing of the past. But just because they’re finding other ways to distribute their products.

What you should not worry about from an investment thesis is that certainly companies like ourselves who began in the United States have gone global; it’s a lot easier for us to make the adjustments because we come from that kind of a market versus some of the companies that are not domestic trying to make the adjustments. It’s a lot more difficult for those companies in Europe to make the adjustments. It’s very easy for us to make the adjustments in terms of making sure we balance the act between rightsizing the organization for the infrastructure cost versus the distribution system that’s in play.


Next we’ll go to Ronnie Gal from Bernstein.

Ronny Gal – Bernstein

Good morning, and thank you for taking the questions. First, starting at the move from external manufacturing at Merck Ag8U [ph] your own manufacturing internally. Can you give us an idea about how to measure the impact of this? First, what does that do to your utilization under your current facilities? And two, versus external manufacturing, roughly, as a percentage, what kind of savings do you see across the portfolio as you bring those products in?

Robert Coury

So, first of all, Ronny, you’re already seeing the impact. The impact has come in right through to our numbers. We couldn’t deliver the numbers that we’re delivering without the results of what that impact has already been. And I really should have answered your second question first, because when it comes to utilization, as you know, Mylan always had a mantra, built for the future and we’ve always built out ahead of ourselves.

When we first bought Matrix, I could tell you, I can tell you from day one, I’ve told Prasad and Rajiv from day one, there was a reason why we bought Matrix and did not do. We were the first ones to go into India to be able to do a transaction of that size. But the major reason was, and not to do a "commercial business transaction 7,000 miles away" was to build out those facilities.

Our benefit today is from the vision that we had three years ago, quite, quite frankly. We’re just benefiting from what we saw three years ago in terms of what needed to be done. We’ve invested substantially done in India to build out their facilities. To give you an example, I think when we bought Matrix; we were at what, Rajiv, about 2,200 employees?

Rajiv Malik


Robert Coury

Today, we’re up over 5,000 employees. Over double in terms of where we were. I don’t know how many hundreds of millions we put into CapEx down there.

Rajiv Malik

$0.5 billion.

Robert Coury

About $0.5 billion we put into build out those facilities. So, in this business, fortunately or unfortunately, as you know, lead time is everything. As Heather mentioned two years ago, she says, guys, just you’re going to have to trust us because everything I can do to deliver the results that we plan to deliver you in the future in terms of what’s up to us is done. By the end of the first quarter of 2009 I’ll be done, because now what we’re relying on the regulatory system. Well knowing that, that’s why we began to build out India facilities long before this anticipated volume that we’re now realizing and that you’re now appreciating.

Ronny Gal – Bernstein

That’s interesting. So if we kind of look at the capacity that you have today, can you give us an idea about your capacity utilization across the system today and where would it be somewhere kind of like a year and a half down the road?

Robert Coury

It’s a rolling forward process. And there’s no real prediction other than that we constantly try to build so that we have excess capacities in order to take advantage of opportunistic situations that arise in the marketplace as you’ve seen a couple of them in 2009.


And at this time, I’d like to turn the call back over to Mr. Dan Crookshank for any additional or closing remarks.

Dan Crookshank

Thank you, Melanie. On behalf of the Mylan team here, I’d like to thank everyone for joining us on the call. And we’ll be available to take some calls offline as the day goes through! Thank you very much for joining us.


Ladies and gentlemen that does conclude today’s call. Thank you all for your participation.

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