Perrigo Management Discusses Q2 2014 Results - Earnings Call Transcript

| About: Perrigo Company (PRGO)

Perrigo (NASDAQ:PRGO)

Q2 2014 Earnings Call

February 06, 2014 10:00 am ET

Executives

Arthur J. Shannon - Vice President of Investor Relations & Global Communication

Joseph C. Papa - Chairman, Chief Executive Officer and President

Judy L. Brown - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Randall S. Stanicky - RBC Capital Markets, LLC, Research Division

David Risinger - Morgan Stanley, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Jason M. Gerberry - Leerink Swann LLC, Research Division

Louise Alesandra Chen - Guggenheim Securities, LLC, Research Division

Marc Harold Goodman - UBS Investment Bank, Research Division

Joshua Riegelhaupt - Stifel, Nicolaus & Co., Inc., Research Division

Christopher T. Schott - JP Morgan Chase & Co, Research Division

Linda Bolton-Weiser - B. Riley Caris, Research Division

Elliot Wilbur - Needham & Company, LLC, Research Division

David G. Buck - The Buckingham Research Group Incorporated

Timothy Chiang - CRT Capital Group LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to Perrigo's Fiscal 2014 Second Quarter Earnings Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Art Shannon, Vice President of Investor Relations. Please, go ahead, sir.

Arthur J. Shannon

Thank you very much. Welcome to Perrigo's second quarter 2014 earnings conference call. I hope you all had a chance to review our press release, which we issued earlier this morning. A copy of the press release is available on our website at perrigo.com. Also on our website is a slide presentation for this call.

Before we proceed with the call, I would like to remind everyone that during the process of this call, management will make forward -- certain forward-looking statements. Please, refer to the important information for investors and shareholders and Safe Harbor language regarding these statements in our press release issued this morning. Following the management's review of the presentation, we will open the call for questions. I'd like to now turn the call over to Perrigo's Chairman and CEO, Joe Papa. Joe?

Joseph C. Papa

Thank you, Art, and welcome, everyone, to Perrigo's second quarter fiscal 2014 earnings conference call. Also joining me today is Judy Brown, Perrigo's Executive Vice President and Chief Financial Officer.

Now let's go through the agenda for today's call. I will provide a few brief comments on the quarter, including details on our continuing sales growth and strength in store brand market share. Next, Judy will go through the details of the results from the fiscal second quarter and walk through our new guidance for consolidated Perrigo. Then I will provide an update on each business unit plus an overview of our expectations for the rest of the fiscal year. Following this, I will provide an opportunity for Q&A.

First, on December 18, we closed the Elan transaction. I'd like to congratulate the entire team for executing on the closing a few weeks ahead of schedule. It was a tremendous amount of work, and it was done seamlessly. Additionally, many talented professionals from the Elan organization have accepted offers to join Perrigo, and we are excited to welcome them to the Perrigo team. We are very pleased that we were able to retain such great talent to have them join us at Perrigo.

Now let's discuss our recently concluded fiscal second quarter. On Slide 5, you can see that this was, once again, another great quarter for Perrigo, demonstrating the strength of our diversified platform. Our quarterly performance is highlighted by 3 important achievements: number one, all-time record net sales of $979 million, up 11%; number two, continued adjusted gross profit and operating margin expansion; and finally, number three, record adjusted quarterly diluted EPS.

Moving on to Slide 6. You can consolidated Perrigo grew the top line 11% driven by the outperformance in the Rx and Nutritionals business. Despite a relatively slow start to the cough/cold/flu season, consolidated organic revenue growth was 7% with new products contributing $53 million. These strong sales results correlated with impressive results in operating income. We also had record adjusted gross in operating margins for the business. These results allowed us to make strategic investments in our digital media, which accounted for some of the strategic increase in corporate SG&A expense. I look forward to sharing you more of these exciting initiatives at our upcoming Analyst Day on February 28. Now let's move on to the business units.

Consumer Healthcare was relatively flat this quarter as last year's second quarter was an all-time record high on the strength of an unusually early spike in the cough/cold/flu season. Sales for the quarter were $536 million with $17 million of new products.

Our Nutritionals sales segment grew 15%. That's the third straight quarter of double-digit growth. Consumer acceptance of the new SmarTub containers continues to gain traction. Our Rx segment once again achieved record results, growing sales 52% with an adjusted operating margin of 50%.

As you can see on Slide 7, store brand continues to gain market share versus national brands across most categories. Looking at infant formula, the category was up 1.9% with national brands up 2.9%. But store brands grew 9%.

Now let's talk about the analgesics and cough, cold, allergy, sinus categories. In analgesics, the category has grown 2.3% while national brands have outgrown store brands. The relatively strong national brand performance in the category was due to the expected return to the market of a brand's competitor that has been absent from the market for the last several years.

On Slide 8, you can see the strength in store brand market share growth in the infant formula category. Just over the past year, store brands gained 60 basis points. You can see these market share results -- gains that I've just shared with you. Now let me turn the call over to Judy.

Judy L. Brown

Thanks, Joe. Good morning, everyone, and welcome to our first earnings conference call at Perrigo Company PLC. As you just heard, the team recorded its best financial quarter in history with record revenue, adjusted earnings and margins. We delivered solid consolidated operating results while managing through a highly dynamic consumer environment. At the same time, much effort was invested to promptly close the acquisition of Elan before the end of the calendar year, a goal that we were pleased to execute against.

Now let me review the fiscal second quarter results by business segment. Beginning on Slide 9. The change in net sales in Consumer Healthcare was due primarily to an increase in sales volumes of existing products of $19 million, primarily in the smoking cessation and gastrointestinal categories; along with new product sales of $17 million, primarily in cough/cold and smoking cessation categories; and $5 million of incremental sales attributable to the Velcera acquisition. These increases were offset by a decline of $46 million in sales of existing products, primarily in the contract manufacturing and analgesics categories.

I'm sure you all like to understand why we saw year-over-year declines in CHC, so let me walk you through the key drivers. First, sales within our contract manufacturing business were down over 40% year-over-year. The biggest contributor of this decrease was a certain contract customer to whom we supplied significant product in the past year as they resumed production at one of their own facilities, reducing the need for products sourced from Perrigo. While we continue to supply a sizable amount of product to this customer, the volume of sales compared to last year is down significantly. Such is the nature of the contract manufacturing business. Were we to exclude this declining contract sales, Consumer Healthcare net sales would have increased approximately 4% year-over-year.

Second, as we stated, the cough/cold/flu season in the second fiscal quarter started later in the United States versus last year. This, combined with lower incidence of cough/cold and flu, yielded a very difficult year-over-year sales comparison. In fact, as of today, in all of the data we've reviewed and according to IMS FAN data, the incidence of cough/cold and flu is down double digits year-over-year versus last year's season.

And third, the expected return of product to market by a specific national brand competitor impacted year-over-year sales, particularly in the analgesics category. So after all of that, I'm happy to note that within the nicotine replacement category, sales of our store brand nicotine lozenges, notably the recently launched mini lozenges, are performing extremely well with sales up by more than 40% year-over-year.

Adjusted Consumer Healthcare gross margin expanded 50 basis points, attributable to product mix as well as the Velcera acquisition, and the adjusted operating margin was impacted by our decision to accelerate investments in new product R&D.

On Slide 10, you can see that net sales within the Nutritionals segment increased 15% year-over-year as existing product sales rose $15 million and new product sales were $4 million.

As Joe noted, consumer acceptance of the plastic tub within the infant formula category continued to increase as store brand market penetration is now above 12%. Our customers have attributed this increase to a few factors: first, the side-by-side presentation of our product next to the national brand on the shelves; second, consumer appreciation of the superior design and functionality of the powders group compared to the national brand; third, increased shelf space versus this time last year; and fourth, more effective digital promotions targeting young families.

The adjusted gross margin in the Nutritionals segment increased 270 basis points, driven by greater absorption levels in our manufacturing facilities and improved efficiencies over last year. The adjusted operating margin expanded due to DSG&A leverage on increased volume.

As you can see on Slide 11, the Rx team continues to outperform expectations on all metrics. Net sales within our Rx segment increased 52% to $247 million due to incremental net sales of $26 million from the Rosemont and Fera acquisitions, new product sales of $24 million, and product mix. Adjusted gross and operating margin increased due to acquisitions, favorable product mix versus last year and higher margins on new product sales.

Next, on Slide 12. Net sales in the API segment declined to $30 million due to a decrease in existing product sales of $17 million as a result of increased competition, partially offset by $7 million in new product sales. Gross and operating margins were impacted by the decrease in sales in existing products I just referred to, partially offset by lower selling, general and administrative expenses.

Turning to Slide 13. I'd like to walk you through how our new Specialty Sciences segment will be reported. Specialty Sciences includes the revenue we receive from Biogen Idec sales of Tysabri, currently at 12% of their total global product sales, and which you may remember will increase to 18% on May 1, 2014. The revenues we record drop fully to the adjusted gross profit. As previously disclosed, we expect to incur operating costs in this segment consisting of R&D for the D5 Phase II clinical program and SG&A for Irish-based costs, including facilities, legal and finance, among others, in the future.

Now let's discuss our consolidated adjusted effective tax rate for this quarter, which was approximately 14%. As we have discussed in previous calls, we are required to annualize our effective tax rate in accordance with GAAP accounting rules. This GAAP accounting requirement causes benefits of the positive jurisdictional mix of earnings from Elan and the new corporate structure to be recognized in the quarter it is implemented. Since we closed Elan during the second quarter, we realized the benefit of the Elan jurisdictional mix and the new corporate structure on an annualized basis in this period. This impact significantly reduced our effective tax rate for the quarter.

Now some quick highlights on our balance sheet. Excluding cash and current investments, working capital was $718 million at the end of the quarter compared to $707 million at June 29, 2013. As of December 28, 2013, total current and long-term data on the face of the balance sheet was $3.3 billion, up $1.3 billion sequentially from last quarter due to the recently completed acquisition of Elan. Net debt -- that is gross debt less cash, cash equivalent and current securities -- was $2.7 billion, which equaled the net debt to total capital at the end of our second quarter of 24.1%.

Year-to-date, net cash flow from operations was $220 million even with the inclusion of an estimated $103 million of transaction and acquisition costs, cash flows related to Elan.

Now I'd like to discuss our updated earnings outlook for fiscal 2014. Looking to our segment on Slide 14, we continue to anticipate healthy demand for our products in our Consumer Healthcare segment. However, we are making adjustments to revenue and adjusted margins to reflect some recent developments. First, our current February 6 expectation of our ability to have our Guaifenesin 600-milligram ER available for the rest of this cough/cold season has been further risk adjusted. Joe will discuss this in more detail momentarily.

Second, as noted earlier, the cough/cold season began later and, despite some initial indications of an uptick in early January, has not yet surpassed the incident rates of either last year or the rolling 5-year averages of what we would normally see at this point in the season. As such, our outlook for the remainder of the cough/cold/flu season is down versus our original plan.

Third, our contract manufacturing business is now anticipated to be lower than our projections from the beginning of the fiscal year for the reasons I noted earlier. And lastly, we are lowering our probability weights on the launches of the broader Guaifenesin family of products based on current information from our partner.

Given the momentum in the Nutritionals segment with the continued growth of store brand infant formula and increasing manufacturing efficiencies, we are raising guidance for this segment's net sales and adjusted gross margins.

Revenue in the Rx segment is now projected to grow 26% to 30% year-over-year with a more favorable margin structure and new product launches. A deep pipeline and favorable market dynamics enable continued outperformance for this segment. Within the API segment, we are adjusting our revenue growth to reflect the increasingly competitive market dynamics of the products in our portfolio.

Looking at Slide 15, you will see the changes to our detailed consolidated guidance include the acquisition of Elan and the overall dynamics within our portfolio of businesses. We are now estimating consolidated year-over-year revenue growth to be in a range of 15% to 18% with adjusted gross and operating margin expansion. As previously discussed, due to the jurisdictional mix changes related to Elan and our new corporate structure, we expect the effective tax rate to be approximately 22% for this fiscal year. Also, as a reminder, we continue to expect our total shares outstanding to be approximately 134 million shares on a go-forward basis, which equates to a full year fiscal 2014 weighted average shares outstanding of approximately 116 million shares. All of this leads to a $0.10 increase in our adjusted diluted EPS guidance range for fiscal 2014. The increase in operating cash flow guidance includes an estimated $180 million to $190 million of operating cash outflows related to Elan.

The diversification of the Perrigo business model was evident this quarter as the team demonstrated its flexibility to deliver double-digit top line growth. With the closing of the Elan acquisition behind us, we remain focused on solid execution as a basis for continued growth, both organically and as we further cultivate our business development pipeline. Now let me turn it back to Joe.

Joseph C. Papa

Thank you, Judy. Now I'd like to provide some thoughts on our business going forward. The same 3 mega trends continue to drive our business. First, the movement of consumers purchasing and retailers promoting store brand products versus the national brand; second, the continued movement of prescription products switching to over-the-counter status; and third, the continued importance of new product launches.

In fact, store brands represent 35% of the OTC market in dollars and, obviously, more in volume. In addition, Rx-to-OTC switches are expected to continue with more than $10 billion in branded Rx sales likely to switch in the next 5 years. We have all seen new categories making a switch, such as overactive bladder and the nasal inhalers like Nasacort OTC.

The pipeline for 2014 looks robust as you can see on Slide #16. Highlighted by the launch of our store brand version of Children's Delsym and the expected launch of Claritin 24-hour Liqui-Gel and Advil Congestion Relief, with these 2 products, nearly $60 million in combined branded sales.

Year-to-date, we launched an impressive $107 million in new products. And as we stated in August, we anticipate launching over 75 new products across all segments, contributing more than $190 million in revenue in this current fiscal year. The launch of store brand Mucinex 600-milligram ER contributed very nicely to the quarter. However, as we had previously stated, we continue to work with one of our vendors to obtain raw materials for the products that meet our specific rigorous high-quality internal specifications. The team is working diligently to resolve this supply disruption as quickly as possible, but we acknowledge that this will have an impact on our ability to supply customers, and we have adjusted our guidance for Consumer Healthcare to reflect this.

Also, based on recent comments from our partner in terms of their current expectations for the remaining family of Mucinex-like products, we have decreased the fiscal year '14 probability of launch. In our Animal Health business, we have begun shipping our store brand version of Frontline to limited customers and expect additional customers to order in time for the flea and tick season this spring.

Turning to Slide 17. You can see that what we expect in our Nutritionals business has been driven by numerous growth drivers in the coming year, most specifically the upgraded national brand-style packaging, the SmarTub.

Moving on to the growth opportunities in our Rx segment on Slide 18. You can see that we continue to be very well positioned. Over the past few months, we have launched 5 new products with combined brand sales of more than $450 million. In January, we received final approval for the generic equivalent to VANOS Cream 0.1%. We were awarded 180 days of generic drug exclusivity and began shipping the product in the middle of January.

We have a robust pipeline of 28 ANDAs pending FDA approval, representing approximately $4.2 billion in branded sales, which includes 7 confirmed first-to-file ANDAs, including the generic version of Androgel 1.62%.

Additionally, on Slide 19, we have a healthy leadership position across multiple technologies, including the only FDA-approved generic topical foam. Additionally, we have a full year of contributions from our 2013 acquisitions of Rosemont oral liquids and Fera's ophthalmic products.

In summary, on Slide 20, Perrigo is poised for continued strong growth with a great start to the new year.

Finally, a couple of the questions that have come up during recent meetings in San Francisco I wanted to comment on relative to Tysabri. One of the questions is how and when we might consider monetizing the asset? First, let me say that we love this asset. It's a growing royalty stream on a drug with best-in-class efficacy that generates cash. That said, there has been a lot of interest in this asset, and we like the optionality that this asset brings to us. Ultimately, we will do what is best for our shareholders and for Perrigo.

On January 29, I also want to let you know that we priced an underwritten public offering of shares of Prothena, which was one of Elan's investments. This has generated approximately $79 million for Perrigo. We are monetizing this asset as part of our strategy to focus on the core strength of Perrigo.

The next most popular question we -- that has been coming forward to us was when will we be doing our next deal and how big will it be? First, we stated our desire to delever the balance sheet to approximately 2x debt-to-adjusted EBITDA in the next 18 months. We believe we can do that and still do the adjacent category bolt-on or geographic transactions that we've done in the past in the near term. Our business development pipeline is robust, and the team considers, on those types of deals that opportunities will arise in the sub-$200 million range.

Finally, I'd like to thank the entire Perrigo team for the impressive first half results. It takes a great team doing great things to achieve these results. Perrigo is very well positioned for further growth as we head into the second half of our fiscal 2014 with a more enhanced platform as we continue to execute on our mission of making quality healthcare more affordable for consumers.

Operator, let's now open up the call for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Greg Gilbert of Bank of America.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Joe, you proactively answered a part of my first question, and I was going to ask how would you, maybe I'll say, further characterize the level of interest in Tysabri you've seen from outside parties? And when might you make some decisions based on that interest? And then I'll have a follow-up.

Joseph C. Papa

Okay. Well, first of all, Greg, I think as I stated on the call, we love the asset. We think it's a great asset for us. It's got a number of important characteristics in terms of obviously being very unique in the MS category, being a highly effective product. It's a great -- we've got a great partner with Biogen. It's got an escalating royalty. The tax rate on it is approximately 1%. And we think it has a long life. Having said all that, there has been interest in this asset from some other individual companies out there in terms of this royalty, this very significant royalty. I think what I'd probably say right now is that we're evaluating those discussions, and we'll continue to have some discussions to really understand the relative pros and cons of this. As I've stated publicly, I think there's a couple of different ways one can look at a royalty and monetization of royalty. You can do a vertical slice, you can do a horizontal slice. You can do a time-based slice, but I think we're looking at all the different options in considering those. But in the long term, we certainly like the asset, and I think I probably won't say much more about any specific timing on that question.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

And then on the deals, the comment you made about deals and being focused on the bolt-ons in the $200 million or less range, are you saying that those are the only types of deals you're likely to do in the next 18 months? Or just that you can do those deals and still honor the deleveraging target without having to make some bigger decisions, so I guess, focused on what you would do and would not do?

Joseph C. Papa

Yes, I think it's more of the latter of what you said, Greg. I think we feel that we can still do transactions very similar to what we've done in the past. Those are really the adjacent categories where we bolt on a transaction there, or we do some type of smaller geographic expansion opportunity where it's a sub-$200 million level. Those are the things that we can because we're generating significant cash. Having said that, it is a bigger transaction, the plus-$1 billion-type transaction to where we have stated that our first priority will be to delever our debt leverage. So look for smaller ones. There are some out there but not the large transactions at this time.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

And if I could sneak one last tax one in for Judy, I have to -- in terms of the quarterly fluctuation in the tax rate, Judy, going forward, other than that sort of annual effect issue you described, how much do you expect your tax rate to bounce around by quarter? And then at a higher level, what have you learned since closing that has made you feel either more optimistic or less so about tax savings longer term for Perrigo?

Judy L. Brown

Well, that's a very multi-part question. Thank you. So the annualization, I think, I commented in the prepared remarks that you get the impact of having to catch up. GAAP requires us to book annualized tax rates. So once we were in a position to close in the quarter, that forced us to have to make this, what appears to be a funny adjustment to the Q2 tax rate. But that gets our year-to-date tax rate in line then with what we expect for the full year, i.e., that 21% to 22-ish percent effective tax rate on an adjusted basis for the full fiscal year. How much it will bounce around in the context of the remainder of the year? On a quarter-to-quarter basis, we've given you a pretty tight range. The only thing would be if there was some very unusual swing jurisdictionally within the core business from Q3 to Q4. For example, I don't expect that much volatility when we're starting to get such an advantageous benefit in the overall rate with our new structure. That being said, post-close, is there something new or revelatory about the ongoing go-forward view of what the effective tax rate will and can look like? Of course, on -- in future years, we will have the effect of a full 12 months of this structure and the contribution from Tysabri on a go-forward basis. So that will continue to keep us in that high-teen zone that we talked about previously as we started to project what we thought the tax rate would look like in the future. There has not been anything specific that would make us deviate from that other than obviously looking at the ongoing jurisdictional mix of our underlying business, timing on new products, timing of contribution from Rx, et cetera. So no changes that I'd really comment on at this stage to deviate from the types of tax rate we've talked about in the past.

Operator

And your next question is from the line of Randall Stanicky of RBC Capital Markets.

Randall S. Stanicky - RBC Capital Markets, LLC, Research Division

Just on Tysabri, Joe, Judy, any change to the way you're thinking about the accretion for fiscal 2015 and beyond? And then, Joe, specifically as you're thinking about slicing or potentially slicing Tysabri, how do you -- how are you thinking about managing the P&L sensitivity from that perspective?

Joseph C. Papa

Sure. So let me start with Tysabri. I don't want to give a suggestion that I know there is a specific way to slice Tysabri. And I'm not making any representations that we are going to do that as we really love this asset. So having said that part of the commentary, I really think I refer you back to what we put forth in the S-4 projections out there for Tysabri. That's really how we're looking at this asset. As Judy stated with relative to tax, the operational tax synergies that we've looked at for the Elan transaction still exists as we've previously stated. So I see no real changes there in terms of how we're looking at it. Obviously, though, one of the comments that I made was relative to some of the other assets that we acquired as a result of the Elan transaction, most notably Prothena. And we have now distracted ourselves from the Prothena asset to really focus on the things that we believe at Perrigo are core to our strategy, which is, as we've stated before, quality affordable healthcare. So there are some things that -- there are JV or other activities that we will extract ourselves from. But importantly, I'd say that the numbers that we put forth previously are continuing to what we're striving for from an operational and tax synergy point of view.

Operator

Your next question is from the line of David Risinger of Morgan Stanley.

David Risinger - Morgan Stanley, Research Division

So I just wanted to dive into the Elan contribution and just better understand that. So we calculated that the Elan contribution for about 2 weeks in December was $0.03 per share after tax, and I just wanted to confirm that that's correct. And then also, I just wanted to understand why for the next 6 months there would just be a $0.07 per share after-tax benefit. So if you could just help us better understand that and walk us through that, Judy, that would be great.

Judy L. Brown

Sure. So thank you all for patiently letting me walk through this because this is one of those -- as messy as it gets from an ins and outs perspective on the P&L. So rolling it forward, this quarter, hopefully, we roll it forward and then ongoing, we'll all be level set with the same assumptions. So you are operationally, directionally accurate when you do the math on what the Specialty Sciences segment contributed to earnings before tax. But step back for a minute, and think about the other ins and outs that comes through the P&L this quarter and as we forecast the full year guidance to think about what's going on. First of all, obviously, you have share issuance. So if you start to think about what that impact is, it will be 100 -- approximately 116 million shares, weighted average shares outstanding for the full year or an incremental 21 -- 20,658,000 shares that come through this quarter. So that has, obviously, right off the bat, a negative impact north of $1 of EPS just going through on the sheer calculation of incremental shares outstanding. You do get the incremental income that comes from, to your point, the 10 days in Q2 of the Elan operating contribution, Specialty Sciences contribution that will go on through the rest of the year. That does top through. And you can look at the estimated modeling that came through in the S-4. We are not specifically quoting that number, but that is a healthy contribution for the full remaining 6 months of the year. You have an incremental negative interest expense. Now it's -- that technically is only a few cents negative because we were able to get new financing on an ongoing basis. The outstanding debt number is larger, but the type of financing that we were able to raise, it raises total interest expense for the year about $8 million. You get a negative impact of several cents on the interest expense line. And lastly, you get the positive contribution of the ongoing new tax structure. So as you're looking at revising and updating your model to look at the full year, obviously, we have been guiding to a tax rate, give or take, 31%. And now we're telling you, 21%, 22%, that has a good guy [ph]. Net-net, fully loaded here, you come back around to the contribution of the acquisition of Elan. We had told you, expect approximately $0.10 accretion for fiscal year '14. Our number is slightly north of that, offset by the fact that we did comment that the basket of our portfolio for the, I'll call it, legacy -- the outstanding business pre-close of Elan is slightly negative. There's some good guys [ph]. We talked about Rx and Nutritionals being guided up, consumer Healthcare and API being guided slightly down. The net-net of all of that ends up coming back to the $0.10 accretion number for our overall EPS guidance range. So hence, my -- when I talk $0.10, you're trying to go from $0.03, add $0.07 in the back half of the year, and the curiosity of why it's only that $0.07. But it is all the ups and the downs, really, of the shares, interest, tax.

Operator

Your next question is from the line of Jami Rubin of Goldman Sachs.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Judy, you beat this quarter by $0.27 but only raised the full year by $0.10. So I'm assuming the $0.16 shortfall in the back half of the year is explained by Consumer and API even though you also raised Nutritionals and Rx? Just trying to understand where the real shortfalls are because at the same time you're raising guidance for 2 very important divisions. And also, Joe, if you can give us an update on your thoughts on Nasacort AQ? It would appear that you are not including that in your numbers, and I would expect that, that would have a material impact later this spring for your Consumer Healthcare business.

Joseph C. Papa

Sure. Let me start with just some comments, and I'll talk --- then I'll get to Nasacort, and I'll turn it back to Judy on that just for continuity here. So let me start on -- first of all, on the general question there, as Judy stated, there's a lot of moving pieces as we go forward. We did, as you stated, we did the quarter relative to the numbers on the adjusted earnings per share. Having said that, we did feel it would be appropriate to, with all the moving pieces in and out, to just try to continue to digest all of the activities and just try to come forth with a number that we felt was something that we could accomplish and be confident in that number. Having said all that, is there some piece of that going up? Yes. Are there some pieces that we've been more conservative about? Yes. That is also true. So it's really a reflection of trying to look and manage and understand how each of those pieces will impact the future for us as a company. But the only thing I wanted to say was I think it's just critically important is that, number one, we're still seeing very strong revenue growth up 11% across the total business this quarter. We've got record operating margins at 24.3%. And importantly, I think what really is the major part of this answer is that we have a diversified platform of business units that's allowing us to generate consistent long-term growth despite, as Judy said before, the weak cough/cold/flu season, the return of a branded competitor. So I think it is those pieces that allow us to still have the confidence to raise the numbers. Going back to the Nasacort, what I would say about Nasacort at this time, first of all, we're excited by the approval of Nasacort OTC and what that means for the entire category of nasal inhalers and other products that could potentially switch out [ph] at some future time period for the nasal inhalers. Number two, I'd say, it's great to see the Nasacort OTC product get out into the market this week. It appears Sanofi is spending behind this product. Having said that, we are working with our partner, Teva, and there still is a number of things we need to do to work through the issues with Teva to get our product into the marketplace. So I'm probably going to stop at that point because we still have a number of things that has to happen between ourselves and Teva.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Is it in your guidance, Joe? Is Nasacort in your guidance this year, risk-adjusted?

Joseph C. Papa

We have reduced the probability weighting significantly on this product at this time, and that's why we don't want to say much more than that at this time.

Judy L. Brown

Well, I was just comment, Jami, to your point on the back half of the year. As we look at the landscape of the second half of the year, I walked through the big factors that led us to take the CHC number down, which is never something we take lightly. And we commented on those moving parts. And to Joe's point, dramatically changing some of those probability weights, he just commented on one product in particular, but I commented on the Guaifenesin entire family of products in-house and partners. And we talked about what appears to be a weak cough/cold/flu season that -- where the retailers are doing a good job of managing their inventory very efficiently for their own balance sheets, and a very low incidence gave us pause to think about, to your point, where is the $0.27 and being conservative as we think about that second half of the year with all of the moving parts and a lot of variables. So hence, the number where we are right now knowing that there are several things that can still happen but wanted to get to a place where rolling you [ph] forward to the second half of the year and giving you visibility on the whys we've changed those numbers.

Operator

Your next question is from the line of Jason Gerberry of Leerink Partners.

Jason M. Gerberry - Leerink Swann LLC, Research Division

Just a quick question on Mucinex family and the regulatory issue there. Could you comment at all whether those are major or minor deficiencies? And if you can't answer that question, my backup is on infant Nutritionals, it looks like you're kind of grinding up your market share in an upward direction. How should we be thinking about the container conversion opportunity? Is this kind of going to be driven more by category growth? Or do you expect a kind of more meaningful share capture going forward?

Joseph C. Papa

Well I'll try to hit the highlights on the Mucinex question, and then I'll get to the answer on the -- kind of the rest of it. So as I stated on the call, we have a partner for the Mucinex family of products. We've had conversations with that partner. Based on the comments from our partner, we felt that the right thing to do is to reduce the probability of our launch in fiscal '14. We just -- we always -- every new product we have, we look at it, we put probability weighting on that, and depending on our progress for how things move because if things go better, we're going to expect -- sometimes they go worse than expected. We just adjust probability weighting. In this particular category, as I stated on the call, we felt the right thing to do was to reduce the probability weighting based on what we heard from our partner on this particular product. It's actually a family of products. On the second part of your question, on infant formula, the gains in the infant formula market share that we talked about, the 60 basis point improvement, really are a reflection, we believe, of the SmarTub plastic container that we've launched into the marketplace. We believe that anytime that Perrigo has launched a product that made that product look more like the national brand, we do well. And this particular product are -- the infant formula plastic container looks very similar to the national brand. When we make our product look similar to national brand, it invites comparison. When we invite comparison, consumers are more likely to select the store brand private label product, and that's what we are seeing the gains in the formula, infant formula market share gains. So we do expect to see infant formula continue to gain market share, and that was some of the reasons that we felt comfortable in raising our guidance from the previously stated 8% to 12% to the current guidance for this call at 10% to 14% revenue growth based on the strength of what we see in the private label business. Only other comment I would make there is that we also see, as illustrated in our handout materials, some other categories that are going to help us to grow -- for other products in the category that are going to help us to grow within the Nutritional business.

Operator

Your next question is from the line of Louise Chen of Guggenheim Securities.

Louise Alesandra Chen - Guggenheim Securities, LLC, Research Division

So I just had a question on 2 growth opportunities that you have, which is, one, being the Rx-to-OTC switch and any updated thoughts on Lipitor, Nexium and additional OAB products that may switch over the counter? And then, secondly, on Animal Health, where are you with the Rx products and making generic versions of those?

Joseph C. Papa

Sure. Well, I think going back to the first part of the question, the Rx-to-OTC, as I stated on the call, we are very excited about the switch of the different categories or new categories starting with the Oxytrol, as an example. Oxytrol went over-the-counter, which is we think is great news. Oxytrol by itself is not a large product from a prescription point of view, but importantly, it has -- being the first in the category of overactive bladder, it may open up opportunities for additional overactive bladder products to move from prescription to OTC. Obviously, we're going to continue to monitor those very closely. As I mentioned just previously on the nasal inhalers, the Nasacort move is an exciting move. It's now actually in the marketplace this week. I think though it opens up other opportunities for nasal inhalers beyond just the Nasacort product. And I think you know that our portfolio in the Rx side has already always been looking at those kind of opportunities with the belief that someday, they may switch from prescription-only status to OTC. So we think we're well positioned in the category for other products that may switch into the category of nasal inhalers. On the question of Nexium, we think Nexium is a spring 2014-possible event. It may get pushed off slightly. But we think somewhere in that spring 2014 timeframe is when we would see the national brand switch. But as I said, it could be 6 months later, but it's somewhere in the 2014 timeframe based on at least our current information. As to other products like Lipitor, I think you may have seen in the news that Pfizer made some comments about their pursuit of an oral over-the-counter opportunity, and we're just continuing to monitor that. I think it's still -- it's not 100% probability. I think it's, as I've said publicly, I think it's more like a 60-40 probability, but I probably don't want to say much more on it. Obviously, we wish Pfizer well on their pursuit of that particular product. It's really important for us really always to be in the position of being a fast follower for any opportunity that does go over-the-counter. On the Animal Health in the generic side, I'm probably going to just really say, Animal Health, our primary focus at this time is looking at Animal Health products that are over-the-counter or available without a prescription. And that really is our focus with -- starting with the flea and tick products. But we do believe that there is a great opportunity in the Animal Health for companion animals, as we've stated previously. So we're going to continue to follow that track and see what other adjacent category bolt-ons would help us with Animal Health.

Operator

Your next question comes from the line of Marc Goodman with UBS.

Marc Harold Goodman - UBS Investment Bank, Research Division

In the Consumer business, you went through in nice detail just why it was weak. I was curious on the brands -- the brand coming back, J&J coming back with their analgesics. Obviously, this has been something that we've been watching now for quite a few quarters. So I was curious why all of a sudden is that an impact now, or has it been an impact before, it just wasn't as much? And I was curious how much of that is the reason versus the cough/cold versus the concept [ph] manufacturing. If you could just maybe give us percentages of the weakness in consumer was mostly this but partly that. And then, no one has asked about API, but API seems to be a little bit weaker than before you even launched Temodar, which has obviously been a great product, especially last quarter. So I was curious what is going on in the base business of API that seems to be pushing that to be a little weaker than where we were before Temodar.

Joseph C. Papa

Sure. Let me start with the first part of the question of what we are seeing in Consumer Healthcare. The expectation of the return to one of the large branded companies was something we fully expected, and that's really not something that has been a surprise. We all felt that. I think I would say the return to that product category has gone well for the brand. But we still believe that, as we've stated, probably we would still retain a portion of that business that we have picked up while the brand has been absent from the market. So that really has not changed our impacts or how we've looked at our Consumer Healthcare business. The real change, as Judy mentioned, was the weak cough/cold/flu season being down double digit. It is the Mucinex supply disruption that continues on the single-entity Guaifenesin 600-milligram product and then as well us lowering our probability weighting on launching the remaining family members for the business and, of course, what Judy mentioned on the contract business. Now going back to the question of the API business. Here's what I would say on API: API, the temozolomide product launch is going well. The generic is picking up a significant share of that business. But we also want to be cautious about the Day 181 when potentially other competitors could come into this business. So we don't want to get too far over our skis, as they say, relative to what's happening there. But the other part of the business on -- beyond temozolomide, we have seen some weakness in that business. As we said a year ago, we had a wonderful opportunity to monetize and receive some value for a product that was somewhat getting a 180-day exclusivity on the product was somewhat unexpected. So that was a positive last year. That's going away. So that's why you're seeing some lumpiness in the API business. The only other comment I would say is I would remind everyone the API business for us is strategic for a couple of reasons. Number one, it's a chance to launch some products like a temozolomide that are unique into the marketplace. But the other important reason, as we've stated publicly, we intend to use this for vertical integration as well as to have a credible threat that if we cannot get lower raw material prices from our suppliers, we could choose to make our own raw materials. And I think that's partially why you see us seeing some very significant operating margin improvements in our business, and getting to a record operating margin of 24.3% for the quarter, I think, goes back to some of the value that the API business has added to it. So yes, lumpy business, no doubt about it but still drives some significant synergistic value for us as a company.

Operator

Your next question comes from the line of Annabel Samimy of Stifel.

Joshua Riegelhaupt - Stifel, Nicolaus & Co., Inc., Research Division

This is Josh Riegelhaupt in for Annabel. To the extent that flu and the cough/cold segment has kind of surprised to the downside, how much room do you guys think you have on the upside come the other seasonal products for flea and tick? And then also can you comment a bit on your operating margins? And since they seem to have expanded particularly in Nutritionals, how much more room you have just to continue that trend?

Joseph C. Papa

Sure. Well, I mean I guess, one of the things I always say on how we look at both the cough/cold/flu season and the flea and tick, which candidly is a -- relatively, we've only got one year flea and tick under our belt, so to speak. I would say we always try to look at what we think would be an average season. The tough part of the cough/cold/flu season this year is last year was just a really tough comp to compare with that it was a very early and very significant season. And that's really caused some of the decrease that Judy mentioned relative to our cough/cold/flu comp versus a year ago. On the question of flea and tick, really, we always have to try to put in an average year on things like flea and tick, on things like allergy season, on things like cough/cold/flu because you can't ever really know exactly what's going to happen. We look at the community levels of things that help drive something like the flea and tick season, but from a forecast point of view, what the way -- because we have things that go up [indiscernible] to go down, we always have to just put it on a probability weighting for all our products. And so I would just say that we'll continue to look at average seasons accounts for both allergy and flea and tick where there such unknown variables until we get to the seasons. On the question of the operating margins on Nutritionals side, we do like that business and what the team has done. They've worked around the clock to make sure that we continue to improve our operational efficiency as we went from a previously composite metal can to the new plastic container. So it's been just great work by the team. And I think we're just getting better and better, the efficiency that comes out of the business. So I probably don't want to say anything further on the operating margin. We kept the nutritional operating margin at that 12% to 16%, which was consistent with where we've been all year. I'll probably just leave it at that relative to where we expect to go. But I do think that opportunity is there with our infant formula business to continue to drive the top line based on gaining share and then continuing to look at what we'll do with the operating margin as if we get more efficient in the manufacturing process required for the plastic container.

Operator

Your next question is from the line of Chris Schott of JPMorgan.

Christopher T. Schott - JP Morgan Chase & Co, Research Division

Coming back to business development, I know your priority is to delever in the near term. But when we look at those larger transactions, the $1 billion-plus type of deals, in broad strokes, can you just talk about the priorities and focus there? And are those different from some of the adjacent category opportunities you've highlighted in the past? The second question, and sorry to come back to this tax issue. You guys keep getting questions here. If we've been previously modeling Perrigo with a 30%-or-so tax rate the first half of the year and something more in the range of 17% the second half of the year once Elan closed. With this accounting you're laying out today, should I be basically raising my second half tax rates into that 21%, 22% range, which might help explain some of this kind of big quarterly beat and more modest kind of guidance bump that we're getting with the annual numbers?

Arthur J. Shannon

Do you want me to grab the tax one first?

Joseph C. Papa

I'll do business development, then you do the tax. So on the business development side, there's really no significant changes in what we've said. We think we can do the smaller bolt-on transactions now and those would be the adjacent categories or the geographic opportunities. We're then looking at the larger transactions -- the opportunities would be the -- in terms of what targets we're after. It really is all the things we said before. It's what can we do in adult nutrition, what can we do in diabetes, what can we do in ophthalmics, and what can we do in pet care as the larger type of transactions from an adjacent category point of view are the ones that we are very interested in. So no specific major change with that. I would obviously have to add to what I just said that there are larger transactions geographically as well that we think would help our business and help bring our comps [ph] as a quality, affordable healthcare in a more global configuration. So same basic categories of looking at what we're trying to accomplish with adult nutritions, ophthalmics, diabetes and pet care type products is what we're looking at as well as geographic expansion. Judy, do you want us to take the second part of the question was really this question on tax.

Judy L. Brown

I love to talk about tax.

Joseph C. Papa

Good.

Judy L. Brown

As we talk about the way to think about the tax rate for the full year and all of our lead-up discussions since the announcement on July 29, it was always around and expected the first 12 months after the deal of being approximately 17% high teens. Now we get into the reality of our fiscal year and the closing of the transaction, which we had started to estimate, assume December 31 for easy modeling. One half of the year is at one rate. Second half of the year is at the other rate. And we said, "You start to blend those out, we'll let you know, but it should be in the low 20s blended for the year." So here we are today. And this is just, again, the uniqueness of the requirements under U.S. GAAP. Because we closed in the month of December, we have to book in the quarter a blend for the full year. So you get caught up now in Q2. So that very low 14% rate in Q2 reflects this catching up. So as you're building your model for the period of January to June, you should now book an effective tax rate of approximately 21%, 22% because you've gotten caught up now. You're caught up. So the blend for the full year and how you should book the second half of the year should be 21%, 22%, as we've guided in the document that you see on the WebEx. So that's the rate that you should have in the second half of the year model because that's what we'll have in our second half of the year model because we did the catch-up in fiscal second quarter. And just also, as you're doing your model, I'm going to come back to shares for a second. Same concept. Think of it this way. On the face of the income statements, you have shares today outstanding. On December 28, 98.7 million weighted average shares first half. Second half, 134 million shares will be outstanding in the second half of the year. I made -- we made the comment on WebEx that the blend for the full year, weighted average shares for the 12 months is 116 million shares. But again, smaller amount in first half, 134 million in the second half. So make sure that if you're laying out your models that you reflect actual shares outstanding in those 2 quarters remaining will be north of 134 million.

Operator

Your next question comes from the line of Linda Weiser of B. Riley.

Linda Bolton-Weiser - B. Riley Caris, Research Division

Just a question on the Nutritionals segment and the increase in your guidance. And you start to get up against your harder comps in the next quarter, in the fiscal third quarter. You don't have the declines in the prior year. So I'm kind of wondering if we're going to see growth drop down much lower into the single digits and then how that kind of goes along with your increase in the guidance there? And then secondly, Prestige Brands this morning reported in the branded OTC space, and they're having similar issues as you with J&J's return and inventory reductions by retailers as well. They said there was a 4 percentage point gap for them year-to-date in their fiscal year through 3 quarters between sell-in and sell-through. Can you comment on, like, the magnitude for you of the difference between your shipments and the consumption and what that says about the level of retail inventory now?

Joseph C. Papa

Sure. So let me get to the first part of your question on the Nutritional guidance. And I would say we certainly are aware of some of the changes in the numbers from last year and what that means from our comp. So relative to where the Nutritional business is at being up 14.6% in the second quarter and -- but we're suggesting our guidance for the full year being that 10% to 14% range. So by definition, that would mean that we know we expect that the percentage gains off of last -- second half of last year are going to be less. So we acknowledge that comment, Linda, relative to what's happening. But I always step back from any individual quarter and say, "What's happening with the mega trends?" And I continue to believe that more and more consumers are moving from national brand product to the store brand private label. And that's evidenced by what we're seeing in terms of the gain in the basis points in terms of market share gains for our infant formula. I think that's what's the most exciting part of what we are seeing out in the marketplace is more and more consumers using the store brand private label product versus national brand, albeit still only at 12-plus percent, but still growth for the future there. On the second part of the question, we did make mention in this call about what's happening with the specific inventory positions. So we do look at that. We look at it a little differently than what you talked about the other company doing. What we look at is days sales on hand, so we understand what's happening out there. There is -- has been some slight reductions. This is just really a normal pattern as we see at the end of customers' fiscal year changes. So there is some reductions going on. We don't see anything as a continuing trend there, but it is something we keep a close eye on relative to where that's going to go in our expectation. There is no doubt that the supply chain efficiency that has occurred between Perrigo and some of our large retailers has gotten more efficient all the time. It's good for the retailer. It's good for Perrigo, albeit there is some end-quarter results. But on balance, we think that's a good thing to happen as we get more efficient with our large customers. So I don't really -- probably wouldn't say any more of that in terms of that specific gap. We -- our primary method of tracking this what we would refer to as days sales on hand, and we're looking at that and continuing to monitor it. And there's really I don't think any real surprises there.

Operator

Your next question is from the line of Elliot Wilbur of Needham & Company.

Elliot Wilbur - Needham & Company, LLC, Research Division

Just real quickly for Judy, I know it's not as exciting a topic as taxes, but maybe just walk us through the current components of the debt side of the capital structure and what we should be thinking about on an annualized basis going forward in terms of interest expense? And just for you, Joe, very strong sequential performance, obviously, in Rx generics, and that's certainly an organic growth number. Can't really think of specific items that would've accounted for that. Maybe you could talk a little bit about that in more detail. Maybe it's just the difference between approval timing and actual launches, but just a little bit more color there would be helpful.

Joseph C. Papa

Judy, why don't you just take the debt part...

Judy L. Brown

Sure. Your 10-Q is going to be coming out in the next hour or so. And as always, there'll be the extremely detailed footnotes that will walk you through the components of that down to the basis point for interest rates that's high level. We now have outstanding $1 billion of term loans. And so those are at very attractive interest rates tied to LIBOR. We then have senior notes. As you know, the remainder of the capital structure is made up of public debt, so we have notes that are due in 2016 that are 1.3%. We have $0.5 billion of 1.3% notes. We have another $600 million of 2.3% notes, $797 million of 4% notes and just shy of $400 million in 5.3% notes. So round numbers, you're looking at interest expense annually, on an annualized basis, give or take, $95 million. So while we have more debt outstanding on the balance sheet than we did pre-transaction, given the success of our public debt offering, net-net, the weighted average cost of debt is lower and the interest rate expense dollar basis is only slightly above where it had been in previous years. So hopefully, that's helpful. If you didn't catch it all, just wait for your Q to come out. It's about Page 21 when you get your Q up.

Joseph C. Papa

So the second part of your question was the strong performance of the -- our Perrigo generic Rx business. And I would agree that anytime we came to generate a 50-plus percent increase in revenue and approximately almost a 50% operating margin for that business, that's a good result. And I think it really comes from a couple of factors. It's very same -- similar to what I've said in the past. It's being first with new products. We've got a unique set of assets where we are going after the products that I referred to as extended topicals, products that absorb topically both dermatology, respiratory, nasal, ophthalmic-type products and those are things that we're focusing on. We have had the ability to be out there first. And I remind you that, that 50-plus percent growth occurred in a timeframe when even before we launched the Vanos product that did not actually launch until January. So new product has clearly been an important driver. The second part of what we've done is to make sure that we continue with our products to be the last company to exit the market with the products as well. So first in with new products and the last one still making the products. We've got a very wide range of generic dermatology products. We're the last player there still making them or the second to the last player still there. And the reality is that, that also generates some significant opportunity for those particular products in our category. So get there first and stay there for a long time. It's really the simple structure that we have in our Rx product portfolio. And I clearly have to add before I conclude this comment, just great execution by the generic Rx team from everything, every facet of product selection, the selling efforts, the marketing efforts, all the things that go into making a great business unit. Our team has continued to perform incredibly well, and I'm very proud of the results they have accomplished.

Operator

Our next question comes from the line of David Buck of Buckingham Research.

David G. Buck - The Buckingham Research Group Incorporated

First, on the Nasacort OTC opportunity for generics. Can you talk about what the swing might be from? I believe you have that still as in Rx products. So is this something that's actually incremental? Or it's just basically switching from the Rx channel with some pipeline fill potentially? I know you talked about the difficulties in getting it to the channel, but it seems like there may be a loss in the March quarter of sales there. And secondly, for Judy, the contract manufacturing issue analgesics, you called out another $46 million revenue hit, which was most of the shortfall in Consumer Health versus our model. I guess, why didn't we know about the contract manufacturing issue last quarter? I believe it may be J&J who actually took it back in-house, but the cough/cold issue comps. I think knew about analgesic competition. With the contract manufacturing, I'm surprised we didn't hear a commentary about that last quarter.

Joseph C. Papa

Sure. First, let me start in Nasacort, and then Judy can address the contract manufacturing question that David asked. So and if I -- I think I said some of the things that we're going to be able to say on Nasacort is it's great that the product's approved. It's great the product launched. It appears Sanofi's spending behind it. Our -- we have the product with a partner. Our partner is Teva, as we've stated publicly. We still need to work on a number of issues with our partner. Over time though, I do expect the product to be consolidated into the OTC channel because once the product switches from prescription to OTC, often it gets consolidated into the OTC channel. There are still some questions about the exact timing on that issue relative to the actual label and things that we've previously discussed. But there is a number of issues that we are still working our way through on this Nasacort question. And probably I'm going to stop, David, with that as my comment there. But importantly, it really opens up a category of nasal inhalers that we think are really exciting for things like Flonase, Astepro and Nasonex, things like that, that could mean things for the future. Judy?

Judy L. Brown

Yes, sure [indiscernible]. So good question. Our "contract," we call it -- I'm using air quotes -- our contract business is, actually -- think about it as a channel. So we always talk in our disclosures in detail about sales by product category. You'll see it broken down in the 10-K by product category. And included in that is "contract." So it's a channel online selling or rights selling to retailer A, B and C. We have customers for whom we do contract manufacturing of the full basket of certain product categories. That being said, we are also involved in confidential relationships with them and are not at liberty to get into individual sales to individual customers in that contract channel for confidentiality reasons, just like we don't give you sales by specific store retailers either -- brick-and-mortar store retailers. So what does this mean? Why did we not give you an indication of the movement in that channel? Because frankly, those sales are very dependent also on the needs of those customers on a quarter-by-quarter basis. We stand ready to be flexible and provide them products on an as-needed basis as we do for our retail customers. So it is not always -- we can't go through VMI inventory like we can for our retailers and see what's on the shelf in different stores. We take those orders and process them quickly to service our contract customers. And we, ourselves, don't always have a clear line of sight on a quarter-by-quarter basis on what the demands are going to be. So those contract customers are seeing their own dynamics from a competitive landscape change on a quarter-by-quarter basis. Their orders [indiscernible] will change as well. So that is -- we try to always make sure we tell you what's going on in contract, even though it is a channel, and we comment every quarter in the MD&A on those pieces.

Joseph C. Papa

Yes, maybe I'd add, David, is that, obviously, our contract customers are also experiencing a weak cough/cold/flu season as well. I mean, that's to building...

Operator

Our last question comes from the line of Tim Chiang of CRT.

Timothy Chiang - CRT Capital Group LLC, Research Division

Joe, I didn't want to finish the call with a Tysabri question, but, I guess I might as well. Assuming you keep Tysabri, your tax rate is going to stay in this high-tax or high-teens rate. But in the case that you divested Tysabri, would that have any impact on your going-forward cash tax rate?

Joseph C. Papa

Sure. Well, the answer is yes. Going back to the commentary, we like Tysabri, as I stated. But if Tysabri is at a 1% tax rate, so all things being considered, if you take an asset that has a 1% tax rate out of the mix effectively, the weighted average tax rate would go up. There's no question about that. But I don't want to get ahead of ourselves there on that particular question. If anything comes about there, we'll obviously have a lot to say -- more to say about it. For right now, we really like the Tysabri asset for all the reasons that I've said. It's a good asset and a great category of MS. We've got a great partner with Biogen. It's got an escalating royalty, and we do think it has a very long life as a product category. So for those reasons, I'll probably stop there. But the answer is that if we sold part of that or monetize part of that, it would have an effect on our tax rate.

Timothy Chiang - CRT Capital Group LLC, Research Division

And Joe, I just had one follow-up, maybe it's for Nancy. The D5 R&D spend, I know you guys included it in your guidance. Is that more front-end-loaded to the back half of your fiscal year in '14 than fiscal '15?

Joseph C. Papa

The D5 spend, as we have currently laid it out in our expectations, would be for the full calendar year 2014. So it would be through the calendar year. Obviously, that means both in our fiscal year '14 through June 30, and then obviously, the 6 months going into the start of fiscal year '15. So it would be for a full calendar year 2014 as it currently is envisioned.

Let me conclude with that and just make a general comment then. First of all, thank you very much in your interest in Perrigo. It really was -- it was a great quarter. Great execution across the business. I mean, if you think about -- we sometimes forget that we're still making over 45 billion tablets -- doses per year, closing Elan transaction. It takes a great team of people to get the great results that we did achieve during the quarter. And I just like to say thank you for the -- to the entire team for the all the great results that occurred. Thank you very much for your interest in Perrigo. Have a great day, everyone.

Operator

Thank you. And this concludes today's conference call. You may now disconnect.

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