Mylan's (MYL) CEO Heather Bresch on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: Mylan Inc (MYL)

Mylan (NASDAQ:MYL)

Q2 2014 Earnings Call

August 07, 2014 10:00 am ET

Executives

Kris King -

Heather Bresch - Chief Executive Officer, Director and Member of Science & Technology Committee

Rajiv Malik - President, Director and Member of Science & Technology Committee

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

Analysts

Jami Rubin - Goldman Sachs Group Inc., Research Division

Douglas D. Tsao - Barclays Capital, Research Division

Gregory B. Gilbert - Deutsche Bank AG, Research Division

Marc Harold Goodman - UBS Investment Bank, Research Division

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

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

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

Elliot Wilbur - Needham & Company, LLC, Research Division

David G. Buck - The Buckingham Research Group Incorporated

Ken Cacciatore - Cowen and Company, LLC, Research Division

David Risinger - Morgan Stanley, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Financial Results Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to introduce your host, Ms. Kris King, Vice President of Investor Relations. Please go ahead.

Kris King

Thank you, Janine. Good morning, everyone. Welcome to Mylan's Second Quarter 2014 Earnings Call. Joining me for today's call are Mylan's Chief Executive Officer, Heather Bresch; President, Rajiv Malik; and Executive Vice President and Chief Financial Officer, John Sheehan.

During today's call, we will be making forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other matters, the proposed acquisition of Mylan of Abbott Laboratories non-U.S. developed markets specialty and branded generics business; our expected or targeted future financial and operating performance, results, metrics and plans and expectations related thereto; the ability to obtain regulatory approvals and planned launches of and anticipated exclusivity periods for new products.

Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, the timing and accounting of tax treatments of the proposed acquisition; conditions of the completion of the proposed acquisition, including the receipt of approval of Mylan's shareholders; the terms and timing of the regulatory approvals required for the proposed acquisition; costs and other challenges of the integration of Abbott's non-U.S. developed markets specialty and branded generics business by Mylan; the possibility of higher operating costs and business disruptions following the proposed acquisition; the impact of competition; situations where we manufacture, market and/or sell products, notwithstanding unresolved allegations of patent infringement; any regulatory, legal or other impediments to our ability to bring new products to market; and those set forth under Forward-looking Statements in today's earnings release and the risk factors set forth in our Form 10-K for the period ended December 31, 2013.

We undertake no obligation to update any statements made today whether as a result of new information, future events or otherwise. Today's call should be listened to and considered in its entirety and understood to speak only as of today's date.

In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. These non-GAAP measures are presented in order to supplement your understanding and assessment of our financial performance. Please refer to today's earnings release, which is available on our website, as well as the SEC website, as it contains detailed reconciliations of these non-GAAP financial measures to those directly comparable to GAAP financial measures.

Before I turn the call over to Heather, 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. An archived copy of today's call will be available on our website later today and will remain available for a reasonable amount of time.

With that, I'll now like to turn the call over to Heather Bresch.

Heather Bresch

Thank you, Kris. And good morning, everyone. Thanks for joining us. Mylan delivered a solid performance in the second quarter, with all of our regions and businesses reporting year-over-year growth, including double-digit increases by our Specialty and Rest of World businesses.

Sales totaled approximately $1.8 billion, up 8% on a constant-currency basis and right in line with our expectations. Adjusted EPS rose 1% to $0.69, which was at the upper end of our guidance range. We were able to deliver these results despite the ongoing delays in approvals of key products by the FDA, once again, demonstrating our ability to leverage our global platform and commercial opportunity.

Our ability to consistently deliver on our commitments reflects the dedication and the hard work of our employees around the world. And on behalf of Mylan's board and our entire management team, I'd like to thank them for a job well done. I'd also like to greet Abbott's employees, who will be joining us as part of the deal, and look forward to welcoming you to the Mylan family.

Now I'd like to walk through the commercial performance of our businesses. In our Generics segment, we delivered revenues of $1.53 billion, a constant-currency increase of 6% as compared to the second quarter of 2013. In North America, sales totaled $737 million, up 3% year-over-year. This underscores the broad-based strength of our overall business, given the delays in product approvals that I mentioned. So we look forward to the contributions these approvals will make.

In Europe, sales totaled $396 million, a 5% constant-currency increase compared to the second quarter of '13. We continue to be encouraged by the year-over-year growth we've seen over the last couple of years, and look forward to the addition of the complementary commercial platform we are acquiring through the Abbott acquisition, which we believe will only further enhance our growth prospects for this region.

In our Rest of World, sales were up 11% year-over-year, constant currency, totaling $396 million. Our ARV franchise continues to drive this double-digit growth, as does our Japan business.

As for Specialty, sales were up 22% year-over-year, totaling $288 million. This was driven both by market expansion for EpiPen, as well as price. Our market share remains stable at about 90%, and we continue to expect double-digit growth for the rest of 2014 for the market and for EpiPen, which remains on track to become this year our first billion-dollar product.

We continue to pursue initiatives that drive education and promote access to EpiPen. For example, all 50 states now allows students to carry their Auto-Injectors to school, and 45 states have passed laws or regulations that allow or mandate schools to stock undesignated pens.

We also continue to invest in our very important organic growth drivers, which are key components to delivering on our target of at least $6 in 2018. Rajiv will update you on some of these shortly.

Additionally, the Abbott transaction not only complements our existing strategy by hitting on many of our key drivers, but it also positions us to potentially accelerate achieving our $6 target. Abbott builds on our strong momentum, expands and diversifies our business in our top 10 markets outside of the U.S. and clearly positions Mylan for our next phase of growth. The anticipated and financial flexibility created by this transaction immediately positions us to execute on highly strategic and financially accretive transactions in the near term.

With that said, given the tendency of the Abbott transaction and management's current activities around additional strategic opportunities, we will be postponing our Investor Day until a later date.

As for our outlook for the rest of 2014, we are narrowing our guidance range for revenue to $7.8 billion to $8 billion and for adjusted diluted EPS to $3.25 to $3.45 per share. This reflects the delays we have been experienced as FDA implements FDASIA. Given where we are in the year, we will not fully realize the annualized impact of key product launches in 2014 that we still are anticipating by year end. We now expect to fully realize the benefits from these products in 2015.

This guidance also reflects launching Copaxone by the end of the year. However, even without the launch of Copaxone in the fourth quarter, we would still expect to be within our guidance range for the year.

With that said, I'll now turn the call over to Rajiv to update you on our growth drivers.

Rajiv Malik

Thank you, Heather. And good morning, everyone. I would like to provide an update on a few of our key growth drivers. I'll start with our generic Advair program.

At our Investor Day last year, we provided a detailed overview of our progress on this subject, especially as it relates to our manufacturing capability. Since then, here's what we have accomplished:

First, we have validated our science further on a clinical scale. Second, we have initiated our clinical trial activities. Third, we have initiated the validation of our production scale manufacturing. Fourth, we continue to have a very productive dialogue with FDA around the science.

In conclusion, we continue to expect to have the first AB-rated substitutable generic form of Advair to the market in 2016.

Now let me turn to Copaxone. We continue to work diligently with the FDA on our application, and I can assure you that the approval of a generic Copaxone is one of the highest priorities for the agency. They are well aware of the importance of the providing patients with access to a generic version of this product as soon as possible.

In terms of our ANDA, we have completed everything that has been asked of us, including completing and providing the agency with a comprehensive gene expression studies, encompassing the entire genome. We also comprehensively addressed every issue raised by Teva in their seventh citizen petition, including the questions about Mylan's formulation.

Let me be very clear, there are maybe 13 other formulations of generic Copaxone that they have procured outside of the U.S., but they are not testing Mylan's product, and they do not have access to our ANDA.

With respect to legal cases, there is ongoing litigation in India brought by Teva against Natco, which is yet another attempt by Teva to block U.S. generic Copaxone competition. They have made similar arguments to the U.S. Supreme Court, seeking an injunction, and that court rejected Teva's request for an injunction. Out of the respect to Indian courts, we will not further comment on this matter other than to say we think that Teva's legal efforts seeking an injunction in India are likely to be as ineffective as their efforts in the U.S. courts.

I will close by drawing to your attention that the U.S. Solicitor General's brief in Teva's case pending before U.S. Supreme Court states that "it appears likely that the Federal Circuit would ultimately reaffirm its conclusion that a patent is indefinite" even if the Supreme Court adopts a new standard of review. The Supreme Court hearing is scheduled for October 15.

We also continue to make good progress on our biologics and insulin programs, and look forward to providing additional updates on these in the future. Let me now turn the call over to John.

John D. Sheehan

Thanks, Rajiv. Today, I'm going to be referring to financial metrics that have been prepared on an adjusted basis. These are non-GAAP financial measures, and I refer you back to Kris's comments at the beginning of today's call regarding our use of adjusted measures.

I'd like to begin today by walking you through our second quarter financial results, which, as Heather indicated, is in line with our expectations from the beginning of the quarter and as stated at the time when we announced the date of this call. These results represented yet another strong quarter for our company with contributions from all regions.

Our Q2 results were achieved as a result of a strong performance at our Specialty segment, where revenues increased by over 20% in the current quarter and by our continued double-digit constant-currency revenue growth in our Rest of World region, driven by our Indian operations. In addition, our North American Generic business continues to generate solid results despite continued delays in key product approvals in the United States.

Starting at the top of our income statement. Total revenues for the quarter were $1.8 billion, an increase of approximately 8% when compared to revenues of $1.7 billion in the prior year. Our revenue growth in the second quarter was the result of a 22% increase in our Specialty segment, driven by the strength of EpiPen.

For the 6 months of 2014, total revenues increased to approximately $3.6 billion as compared to $3.3 billion in the first 6 months of 2013, an increase of 8% on a constant-currency basis. The Generic and Specialty segments contributed equally to the revenue growth in the year-to-date period, and we now expect our total revenues for 2014 will be in the range of $7.8 billion to $8 billion.

Looking at our operating profitability measures. Adjusted gross margin for the second quarter of 2014 was a very strong 50%, up over 100 basis points from the same prior year period despite the lack of significant new product launches in North America. Our strong margins are the result of growth in our EpiPen Auto-Injector, combined with the benefits and efficiencies of our vertically integrated operating platform.

For the 6 months ended June 30, adjusted gross margins remained relatively constant at approximately 50% when compared to the prior year. Adjusted operating income was $410 million for the second quarter, down slightly from the prior year, primarily as a result of investments we've made in R&D and support infrastructure during the second quarter.

Adjusted operating income for the 6 months ended June 30 increased to $806 million as compared to $797 million in the prior year. R&D expense on an adjusted basis was $139 million for the second quarter or approximately 8% of total revenues and near the upper end of our guidance range. As I indicated during our first quarter earnings call, we expected R&D spending to increase throughout the year as we continue to invest in our biologics and respiratory programs. For the 6-month period, adjusted R&D expense was $256 million or approximately 7% of revenues, and our guidance range for adjusted R&D expense for the full year remains between 7% and 8% of total revenues.

At the same time, SG&A, also on an adjusted basis, was $374 million for the second quarter and $727 million for the 6-month period. While adjusted SG&A for both the quarter and year-to-date period were at the upper end of our guidance range of 18% to 20% of total revenues, we do expect to be within the range for the full year.

The growth in SG&A and R&D demonstrated our continued investment in important drivers of our business, including our direct-to-consumer advertising related to EpiPen and the anticipated new product launches within North America, including the planned launches of Copaxone and Celebrex.

Adjusted EBITDA for the 3 months ended June 30 was $488 million, an increase of 6% when compared to the prior year. Adjusted EBITDA for the 6 months ended June 30 was $948 million, a slight increase when compared to the prior year. And we continue to forecast adjusted EBITDA to be between $2.2 billion and $2.4 billion for the full year.

Adjusted interest expense for the second quarter was $64 million and $128 million for the 6-month period. Adjusted interest expense was essentially flat when compared to the prior year quarter and year-to-date period, despite approximately $1.9 billion of additional borrowings in 2014 as compared to 2013. We continue to benefit from low short-term interest rates, which has offset the increase in interest expense from higher long-term debt. As of June 30, 2014, the average rate on all of our outstanding borrowings was slightly below 4%.

Second quarter adjusted net income was $273 million or $0.69 per share, a slight increase from our Q2 2013 adjusted diluted EPS of $0.68 per share and in line with our expectations. For the 6-month period, adjusted net income was $534 million or $1.34 per share.

As Heather indicated earlier, we've narrowed our EPS guidance range for the year to $3.25 to $3.45 per share, with a midpoint of $3.35 per share. This guidance range includes Q4 launches of Copaxone and Celebrex. Our assumptions for Copaxone take into account the patient conversion to Teva's new formulation and assumes an additional generic competitor in the market at market formation.

In terms of the quarters, we expect Q3 EPS to be between $0.90 and $0.95 per share. This implies Q4 EPS of over $1 per share, which is driven by seasonally strong results in certain markets, as well as the launch of Copaxone. Furthermore, even without the launch of Copaxone in the fourth quarter, we would still expect to be within our guidance range for the year.

Turning to our cash flow and liquidity metrics. Year-to-date cash flow from operations on an adjusted basis was $559 million, which is up 98% from our 2013 comparative amount of $283 million, leaving us with unrestricted cash and cash equivalents at June 30 totaling $194 million. We're still forecasting our full year 2014 adjusted operating cash flow to be within our guidance range of $1.2 billion to $1.4 billion.

Capital spending for the 6 months ended June 30 was $153 million as we continue to invest in our strategic growth drivers, and we expect full year capital expenditures to be within a range of $350 million to $400 million. At the end of the quarter, our gross debt to EBITDA leverage ratio is approximately 3.3:1. We continue to have ample borrowing capacity and financial flexibility and remain committed to our 3:1 long-term target for gross leverage, which represents an investment-grade credit profile.

Further, as Heather stated earlier, we continue to be active in the M&A space and remain committed to our stated M&A parameters that any transaction would be accretive to earnings and maintain our long-term gross leverage targets. As you are aware, our financial flexibility will be significantly enhanced through the proposed Abbott transaction, which opens up even more opportunities to create additional value for our shareholders.

To summarize, our second quarter was strong and provides yet another example of our ability to effectively and efficiently manage our business while producing solid results for our shareholders.

That concludes my remarks, and I'll turn the call back over to the operator for Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from Jami Rubin with Goldman Sachs.

Jami Rubin - Goldman Sachs Group Inc., Research Division

Not easy to limit myself to 2 questions, but I will try. First, John and Heather, so you're postponing your Analyst Meeting that was scheduled for September, even though that meeting was scheduled just a couple of weeks before you announced the Abbott deal. I'm wondering if you can provide a little bit more color as to why is it, all the noise around tax inversions that is -- is that a reason? And it also seems that you're hinting at other strategic activities. And John, if you could just talk to how you're able to get another deal done before the Abbott deal, which doesn't close until the first quarter of next year? And then the second question is for Rajiv on Copaxone, what are the gating items on Copaxone approval, generic Copaxone approval? Since it sounds like you're very close.

Heather Bresch

Well, the good news is you figured out how to get 6 questions down to 2. But anyway, I will kind of kick it off here, Jami. First, I guess what I'd say is taking kind of everything into consideration and wanting to come with a full picture of what now the Abbott-Mylan combination will make, we just felt that it would be the best interest to be able to come with that full picture. And in the meantime, we absolutely are busy looking at everything, I think. We've teed that up when we announced the Abbott transaction that we believed that it would be a great -- not only a great strategic transaction, but also financial in the sense that it really sets us up to have extreme and significant cash flow and financial flexibility to immediately to be able to strike and to do other transactions. So I think that just with everything taken into consideration, we thought that the best way to come in front of you guys and give that full picture, how 1 plus 1 equals 4, would be at a later date. And I think that as far as everything else goes, the noise around inversions and everything else, Jami, I guess, the only thing I'd say is there's tremendous speculation. And really, at this point in time, that's all it is. And we are continuing to move forward. We feel solid about our transaction and look forward to laying it all out there for you guys.

Rajiv Malik

And, Jami, on Copaxone, I think nothing is due -- as we just mentioned, nothing is due from the science perspective from us now. We have provided every scientific evidence, including detailed analytics, biological testing and the last, the gene expression study to FDA. FDA had taken its time to review it. Any day, we are expecting to hear from FDA about -- if there is any other open issue. But I mean, we remain very confident that we have addressed every aspect of the science. And now, in fact, it's -- from our point of view, these are few administrative hurdles, which they need to go through just because it's the first generic ANDA.

John D. Sheehan

And I would just close, as Heather indicated, in her comments about looking at everything that -- within that there is nothing that would preclude us from being able to do certain transactions here in the near term.

Operator

The next questioner is Douglas Tsao with Barclays.

Douglas D. Tsao - Barclays Capital, Research Division

So to start with, in terms of the Generics business on products. It was noticeable to me that we didn't get commentary on Lidoderm. And I was just wondering if you could provide an update on the status of your application there and your sort of confidence in terms of getting an approval by year end. Or is that something that you're now thinking is going to happen next year? And then, John, just curious in terms of the guidance, I noticed that you obviously take down the revenue range, as well as the EPS range. But the adjusted EBITDA range seemed to stay the same. So if you could just sort of walk through some of the moving parts that sort of are driving that dynamic.

Heather Bresch

Okay. So I'll start off with Lidoderm. I'll tell you, Doug, we absolutely have every bit of confidence in our Lidoderm application. And I guess, I don't want to sound like a broken record and maybe that's why I didn't call it out. There's absolutely no science issue. There's no issue with our patch. It is truly administrative. I think as we continue to work with FDA, they're struggling in some regard to prioritize and continue to prioritize the most meaningful ANDAs. And obviously, as Rajiv said, Copaxone isn't at the top of their list. We very much hope we have it this year. I mean, I -- and to your point, we have several key launches, key products that we're still anticipating this year. So I would say that we've taken all that into consideration and probability weighted all of these ones that we're still anticipating to get. And like I pointed out, the good news is, they're going to come. And while we may not get the full benefit this year of what they're going to contribute to our business, we certainly will get that full benefit next year.

John D. Sheehan

And just with respect to EBITDA, Doug, what I would say to you is, is that when you look at narrowing of the range that -- our guidance range that we provided here this quarter, that the narrowing was a $0.05, $0.06 differential. And when we looked at the other moving parts associated with EBITDA and where EBITDA was both initially and now in the range, we believe that we'll stay within the range for EBITDA and, therefore, didn't need to make an adjustment to that guidance.

Operator

The next questioner is Greg Gilbert with Deutsche Bank.

Gregory B. Gilbert - Deutsche Bank AG, Research Division

I have 2 for you, Heather. The press release talks about highly strategic and financially accretive transactions in the near term. So would you like to set the bar for us on the likelihood of a deal or deals before Abbott closes? Or offer any other color to straighten people out on what that specifically means? And my second question on inversions, of course, is just what is your personal view on whether the Treasury Department can and will do something soon to materially affect inversions? Or is it just noise and speculation as you suggest?

Heather Bresch

Sure. So, Greg, I'll say this, we absolutely are busy looking at strategic and financially accretive transactions. I'm not going to give a time frame. I think that we're active. And I think as John and I both noted, there's nothing precluding us from announcing or closing a deal prior to the Abbott closing. But with that being said, we don't have a gun to our head. Again, we're able to really look. There's a lot of opportunities out there, and we are looking at everything. And I think that depending on timing and depending on all the different moving pieces and parts, if we can strike sooner rather than later, I can assure you that, that's what our interests are. As far as inversions, I guess, here's my two cents worth on it. I think there is a lot of noise, in the sense that the facts have really been sheltered. I know I've joked before, "Don't let the facts get into the way of a good story or a good campaign." And I truly believe there's such an uneducated dialogue going on around inversions right now that is going to be very, I believe, difficult for an Executive Order at the Treasury Department to do something that doesn't just truly jeopardize foreign entities, including the companies who have inverted and just companies that are foreign that do a significant amount of business in the United States, which contributes to huge jobs. There's treaty aspects. So I think as much as the Senate may want to vote on something to take it back into the field and be able to say to their constituencies they're trying to do something, I just continue to think the odds of anything getting done and looking at one little snapshot of our tax code, which needs significantly reformed, is unlikely.

Operator

Your next question is from Marc Goodman with UBS.

Marc Harold Goodman - UBS Investment Bank, Research Division

Heather, can you give us a little more color on kind of what's going on in Europe, in France and in Asia, and specifically Agila, which is still a relatively new acquisition and how that's been performing? And then second question is just on EpiPen. I thought it was just a really big quarter. And I know we usually get a big seasonal quarter in the third quarter. So I was just curious, was there any strange inventory build this quarter that might have taken away from what we should normally expect as the big third quarter? Or is this really just underlying demand?

Heather Bresch

Sure. So as I mentioned in my remarks, we stay very encouraged. We've continued to see year-over-year growth throughout Europe, especially our largest markets, France, Italy. And obviously, the Abbott transaction just allows us to build even more critical mass around the physician channel and the opportunity for us to now leverage that business between the pharmacy channel and physician channel in those markets throughout Europe. So we're extremely excited, not only about what are now core business and the stability around our core business. But now what we're going to be able to add to it, I think, is going to be significant and truly allow us to get the 1 plus 1 equals 4 out of Europe. As far as Agila goes, it's right in line with what our expectations have been around Agila. We're continuing to be able to get significant product approvals and launches. And like I said, the Agila business is really hitting on all cylinders, and everything remains on track from an operational perspective, as well as a commercial prospect. As far -- in Asia, as I mentioned, our ARV business continues to drive that double-digit growth, as well as Japan. Japan has -- our partnership with Pfizer continues to be -- really exceed our expectations. We've seen double-digit growth in Japan. So that's really driving -- like I said, those 2 are really driving that double-digit growth. As far as EpiPen goes, there, we do not see any inventory build or any issues. We do see significant demand. It's continued to -- third quarter has continued to not disappoint. As far as the market expansion and the demand for this product, I think that our direct-to-consumer advertising has continued to drive great demand, as well as all of our legislative efforts knocking down the barriers to have access to this important drug. So I think all in all, everything -- we couldn't be more excited about the continued opportunity we have around EpiPen.

Operator

Our next question is from Chris Schott with JPMorgan.

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

Just a follow-up on some of the earlier business development comments. Can you just talk about the tax rate implications if you were to acquire let's say another x U.S. branded business prior to the Abbott close? I guess, can you leverage in that situation your new tax structure? And then just a bigger-picture question. One of the little pushbacks we've been hearing from investors post the Abbott deal is this kind of trade-off between earnings accretion and organic growth as you maybe look at additional established product divisions. How do you think about that balance when you consider maybe some of the assets that have been talked about in the market that might be lower growth, but have very strong financial returns as compared to maybe higher multiple, higher growth assets that could support higher growth for the overall business and multiple expansion? Just how are you debating those options as you look at assets out there?

Heather Bresch

Chris, I think that's what we try to stress. And I think, obviously, just to your point, what Abbott really sets us up for is, one, what we're able to do with this business and combining it with our existing business and infrastructure with our operational excellence and being able to really do more with that asset than it was in its current setting. And I think that in addition, obviously, it gives us significant financial flexibility to tee up some of these other transactions that we've been talking about. I think that there is a balance as we continue to look at things that will allow us to build that cash flow, and we're certainly looking at things that both have a high growth rate, as well as those that still may build or contribute to this financial flexibility as long as it complements and has strategic rationale. I think what we've been solid behind is that, that comes first and foremost. And the other things, whether inversion, whether synergies, that, that is a byproduct. But at the end of the day, if it's got the right strategic rationale and we believe tees up for our shareholders the greatest return and lets us have the most flexibility is really what our priorities are as we look at these transactions. John, do you want to hit the tax?

John D. Sheehan

Yes. On the tax side, to the extent that we were to execute on the transaction prior to the close of the Abbott transaction, which, I believe, is the genesis of the question, I do believe that we track proper tax structuring, and we have a very strong tax team here at Mylan that would be able to do so, you would get maximum benefit out of any maximum benefit leverage from any tax structure. So yes, I think there's a lot of opportunity there on the tax side.

Operator

And our next question is from Randall Stanicky with RBC Capital Markets.

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

Just maybe for John, on the guidance. If we look historically, 3Q has been the strongest quarter. But taking into your 3Q -- your third quarter guidance and then looking at the full year range, it implies possibly an up fourth quarter. And that's even in light of, as you said, not needing a generic Copaxone. Can you just help us walk through if there's anything that we're missing or what the bigger contributors to be to 4Q? And then Heather, just a question on EpiPen. You've previously said that you're going to address -- or you would address the EpiPen life cycle management at the upcoming Analyst Day. And in lieu of not holding that or postponing that, can you give us an update on that?

Heather Bresch

Sure. John, do you want to go first?

John D. Sheehan

Sure. Randall, I think that the Q4 being stronger than Q3 is the combination of the benefit of Copaxone, as well as other expected product approvals in the fourth quarter, as well as the timing of spending throughout the year. And as I indicated in my comments, we do expect that the revised guidance that we provided for the year would be achieved -- the low end would be achieved, without the approval of Copaxone. So it's the combination of Copaxone, new product approvals and timing of spending.

Heather Bresch

And as far as EpiPen goes, so Randall, here's what I'll say because I am looking forward to getting in front of you guys with some of the initiatives that we're working on around EpiPen and really creating -- continuing to enhance access to EpiPen. But I think what I'd first say just to maybe level set or put in context, regardless of what we would do to add to this franchise -- and like I said, there's several different initiatives that would add to the overall franchise strategy -- that we continue to see great brand equity and customer loyalty to the product we have on the market today. And we -- that product will stay on the market today regardless of what else we may bring to the market. So it's not so much -- I know historically, we certainly are all aware of a lot of the brand tactics, with switching and swapping out products. That would not be the strategy around EpiPen because just I think it's a very unique product that has significant, like I said, not only brand equity but customer loyalty to the current drug device that we have. And we just see anything else that we bring just to be additive to the franchise. And like I said, I do look forward to bringing you and sharing those initiatives.

Operator

And the next question is from Sumant Kulkarni with Bank of America Merrill Lynch.

Sumant S. Kulkarni - BofA Merrill Lynch, Research Division

The first one is when should we start seeing the potential positive financial impact of the recent generic Paxil CR legal development? And the second is on business development. You had singled out the OTC area as one capability that Mylan would like to have. Would you still answer that question the same way? And for John, quickly, would you be willing to dip below investment grade if you had to budget transaction between announcement going to the closing of the Abbott transaction?

Heather Bresch

Okay. So first of all, obviously, we're very pleased with our Copaxone judgment and the injunction that was put into place. And I can assure you, we are doing everything to maximize that opportunity, and that's certainly built into the guidance that we've now given you for the rest of '14. And as far as the OTC channel, we do think that's an interesting channel; certainly, in some respects, even outside the U.S. more than inside the U.S. Because I think as you think about how these channels play against each other in Europe or with each other from a physician channel, a pharmacy channel and that OTC and given the independence of the pharmacies throughout Europe, there are opportunities to build that brand presence on both behind the counter and in front of the counter. So -- and as we stated, the Abbott transaction certainly gives us a beginning foothold on OTC. So I think we've got real opportunities to look at some of these brands that we're now acquiring, as well as perhaps add some products that would be very strategic, but allow us to build upon the Mylan equity through now all channels in Europe.

John D. Sheehan

Yes. And Sumant, I think we, through the -- indicated through the Abbott transaction that our leverage ratio will go down into the 2.3x, 2.4x gross debt to EBITDA, and that opens up substantial financial flexibility to us that we talked about a couple of weeks ago when we announced the Abbott transaction. And therefore, I'd say that we have been consistent that we're committed to our investment-grade credit rating. And I don't see any limitation for our being able to do what we want to do with -- in maintaining that rating.

Operator

The next question is from Elliot Wilbur with Needham & Company.

Elliot Wilbur - Needham & Company, LLC, Research Division

First question is for Heather with regard to the EpiPen franchise. Obviously, you're seeing a lot of noise in the market and a lot of shifting regarding formulary positioning. And I guess, despite the fact that EpiPen is a dominant product in the category; and sort of the price leader, it still maintained very strong formulary positioning. And I'm just curious sort of what the trend has been in rebating on the product. Whether that strong formulary position has come increasingly at the cost of higher rebates? And maybe you could just sort of talk about kind of ability to grow the products sort of in excess of the Rx volume growth trends that we're currently seeing in the marketplace? And then just as a second question here and just to confirm, Heather, delays in expected product approval activities are purely a function of FDA time lines that don't have anything to do with recent inspection and observations at any of your facilities.

Heather Bresch

Okay. Sure, Elliot. So what I'd say, Elliot, around EpiPen, obviously, when you've got a multiple epinephrine product marketplace, it leads to a more competitive positioning both with the pharmacies, as well as payers. I think that given the breadth and scope of our business that we've been able to manage and to obviously remain very competitive in that structure. But with that being said, we're going to do whatever we need to do to really maintain that market leadership, and like I said, and continue to look at ways that we can enhance and add to this franchise. So I think the strong script trends are just indicative of how much runway room is still out there because I think as we continue to educate, like I said, not only customers but truly everything from schools to establishments on how important to have access to EpiPen is, we just continue to see those campaigns very much take hold and very much continue to drive these script trends throughout the United States. So I think, like I said, it's just indicative of how much runway is left and the return on our capital being very high based on the demand that it's creating in the marketplace. And as far as the delays at FDA, I will absolutely tell you that there are no science issues, we don't have any facility issues, that it is absolutely administrative and timing on the FDA part. And we believe that we've got a couple of approvals that are imminent. So I think that while much slower than we would like, I think that we're just going to continue to have a stream of approvals that certainly are going to reflect what we're telling you right now. But there's absolutely no issue on any other front.

Operator

The next question is from David Buck with Buckingham.

David G. Buck - The Buckingham Research Group Incorporated

Just for Heather, first on the North American business, you talked about the approval delays. Some of the rationale for that? How much of that has been from the changes in GDUFA with backlog and just the trend of getting more complete response letters as opposed to outright approvals? Secondly, can you talk a little bit about pricing in the North American market, and U.S. specifically? And then finally, if we look at the commentary on inversions, Heather, you refer to it as speculation, but it's essentially one administration, one party. And is there anything that's being done on a lobbying basis from GPhA given that potentially 4 out of the top 4 companies would be foreign-owned and/or inverted? To express your views about potential changes at Treasury or changes with the overall tax law and basically attacking inverted companies?

Heather Bresch

All right, David. So I'll start with North America. I believe that what we're witnessing at FDA really is almost all can be attributed to FDASIA and the implementation of GDUFA. I think they're going through a massive transformation, and I think we're obviously feeling that -- in the short term, that pain. I think in the longer term, it's the absolutely right thing to do. I think it will continue to level set the -- create a level playing field. I think it will raise the bar, and I think that it will continue to give us a tremendous amount of opportunity given our track record and our ability to have a truly reliable, high-quality supply chain. As far as pricing, look, I think that, that stability in our North American -- that core business is certainly why we're able to deliver the results we have today, which, like I said, despite those product delays, we see growth year-over-year. We've seen North America continue to maximize opportunities, not only with our core business. But as other companies have had problems in the marketplace, we've been able to remain very agile and be able to maximize those opportunities as they come our way. So I think the North America business has never been stronger, and that's why I look forward now to just a contribution when we do get these approvals. As far as the inversion, I think as I stated here earlier this morning, there is a lot of speculation. There's a diverse range of things being discussed. And I think, though, at the end of the day, it's going to be very difficult to take one piece of our tax code and try to be punitive for companies that are foreign-based or have chosen inversion. I think that we've been very clear that, that does not mean we'd stop paying U.S. taxes. We're obviously continuing to pay U.S. taxes, as well as a lot of these foreign companies are paying U.S. taxes and creating U.S. jobs. And I think that when you look at our industry, specifically, over 50% -- almost 50% of the products that are sold here in the United States come from outside of the United States. So as we've said, if we wanted to close our borders and not allow any products in -- which seems very impractical, I think that no one has complained about the $1 trillion that our industry has saved our country over the last decade. I think that, that will be continuous. And I think that for us to step back and try to act like we can just buy American, it's impossible in our industry. And that, being punitive and not allow us to be competitive, I do not believe is in our country's best interest, and I hope that prevails at the end of the day, our country's best interest.

Operator

The next questioner is Ken Cacciatore with Cowen and Company.

Ken Cacciatore - Cowen and Company, LLC, Research Division

Heather, just wondering if you can give us as descriptive detail as you can to what you think Mylan will look like in 3 years and what component of Mylan is longer-duration, higher-margin products like an EpiPen?

Heather Bresch

Sure. So look, Ken, I think as you think about the next 3 years, there couldn't be a more exciting time for Mylan. I think when you look at things like our generic Advair, Copaxone, I think when you look at these complex products that we're continuing to bring to the market -- and then you look at EpiPen, but not just EpiPen, you've heard me refer to this franchise strategy. I think as we look at being -- taking an allergy leadership position, I think as you look at our respiratory, I think what you're going to continue to see Mylan doing is really building out excellence in some of these therapeutic categories that allow us to really start positioning full broad-spectrum patient solutions versus just product specific. So I think that, like I said, there couldn't be a more exciting time, I believe, in the history of our company than what we've teed up, the opportunities, what we've invested in, the organic growth drivers. As well as then to complement everything I just said with the transactions that we're looking at. That will just accelerate, I think, some of these opportunities that we have before us. So I think there's not a better time, and I think that Mylan's going to be well, well positioned for significant growth over these next several years.

Operator

Your last questioner will be David Risinger with Morgan Stanley.

David Risinger - Morgan Stanley, Research Division

I have 2 questions, please. First, with respect to generic Advair, you had mentioned last August at your Analyst Meeting that you plan to file the generic Advair application in the first half of '15. I just wanted to find out if that's still the plan. And second, with respect to development of a new EpiPen device ahead of the June 2015 Teva settlement date, just wanted to get an update on that. And then if I can throw in a tidbit. Just, John, I'm hoping that you could comment on the $21 million Other income in the quarter.

Rajiv Malik

David, on Advair, as we said that every milestone which we have outlined for us, including clinical trial expertise, initiation of clinical trial expertise, but most importantly validation of our production scale manufacturing, everything is on track. But the filing, instead of the second -- first half, it will be in the third quarter of 2015. Not affecting our ability to bring the product in the market in 2016. So yes, there's maybe a month slippage on that or 1.5 months slippage. But everything else, from the science perspective, the dialogue with FDA remains on the track, and it doesn't impact our bring the product in the market to substitute the generic Advair in 2016.

Heather Bresch

And, David, as far as EpiPen is concerned, as I was mentioning earlier, I would really separate. We're not -- I wouldn't link any new product or product switching or any tactics in front of or parallel to this June date. As you know, I think we've been pretty vocal that one, we believe that's a very high barrier to entry for substitutable products to be with us in June. But notwithstanding that, we, as I said, will continue to build upon the brand equity and the customer loyalty we have about our current drug device, and anything that we do would be additive to that and not necessarily correlated to the June date.

John D. Sheehan

And I'll close with other income, David. So other income principally represents things like foreign currency transaction, gains and losses, including on derivatives, interest income, equity earnings. And the $21 million represents a little bit higher amount of foreign currency transaction gains and losses this quarter. It looks larger in comparison to the same quarter of the prior year because we actually had about $9 million of losses in the prior year quarter. So I think the comparison is fairly significant. However, I think if you were to look at other income, we do run pretty consistently in the $16 million to $19 million, $20 million range for other income. And so as I said, this quarter may be slightly larger than others, but it's definitely not out of the ordinary.

So with that, operator, you can close the call. And to all of our investors and analysts, we appreciate your continued support. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's meeting. This does conclude the program, and you may all disconnect. Everyone, have a good day.

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