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Executives

Heather Bresch - President and Director

Robert Coury - Chairman, Chief Executive Officer and Chairman of Executive Committee

John Sheehan - Chief Financial Officer and Executive Vice President

Kris King - Executive Director of Investor Relations

Analysts

David Risinger - Morgan Stanley

John Boris - Citigroup Inc

Ronny Gal - Sanford C. Bernstein & Co., Inc.

Michael Faerm - Crédit Suisse AG

Elliot Wilbur - Needham & Company, LLC

Timothy Chiang - CRT Capital Group LLC

Christopher Schott - JP Morgan Chase & Co

Gregory Gilbert - BofA Merrill Lynch

Shibani Malhotra - RBC Capital Markets, LLC

Marc Goodman - UBS Investment Bank

Louise Chen - Collins Stewart LLC

Mylan (MYL) Q2 2011 Earnings Call July 27, 2011 10:30 AM ET

Operator

Welcome to Mylan's Second Quarter Earnings Conference Call and Webcast. Hosting the call today for Mylan is Ms. Kris King, Vice President, Global Investor Relations. Today's call is being recorded and will be available for replay beginning at 1:30 p.m. Eastern Time. The dial-in number is (855) 859-2056 and enter pin number 82698144. [Operator Instructions] It is now my pleasure to turn the floor over to Kris King. You may begin.

Kris King

Thank you, Melissa. Good morning, everyone. Joining me for today's call are Mylan's Chairman and Chief Executive Officer, Robert J. Coury; President, Heather Bresch; and Executive Vice President and Chief Financial Officer, John Sheehan.

During today's call, including the Q&A, we will be making forward-looking statements including those relating to our anticipated business levels, our future earnings, our planned activities, our anticipated growth and other expectations and targets for future periods. Note that these statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Because these statements are forward-looking, they inherently involve risks and uncertainties and accordingly, our actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risk factors set forth in our report on Form 10-Q for the period ended March 31, 2011 and in our other SEC filings. You can access our Form 10-Q and other SEC filings through the SEC website at www.sec.gov, and we strongly encourage you to do so.

In addition during this call, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. It should be noted that non-GAAP measures such as adjusted revenues, adjusted gross margin and adjusted diluted EPS should be used only as a supplement to, not as a substitute for or as a superior measure to measures of financial performance prepared in accordance with GAAP. Please refer to today's press release which is available on our website, as it contains detailed GAAP to non-GAAP reconciliations of our actual second quarter results. Before I turn the call over to Robert, let me also remind you that the material in the call, with the exception of the participant questions, is the property of Mylan and cannot be recorded or rebroadcast without Mylan's expressed written permission. With that, I'll now turn the call over to Robert.

Robert Coury

Thank you, Kris. Hello, everyone, and thank you for joining us today. Before we get started, I'd like to welcome and recognize all of our fellow employees around the world. On behalf of the Board of Directors and our entire management team, I would once again like to thank each of you. Through your continued hard work and unwavering dedication to achieving our goals, we have again delivered another quarter of strong results.

Now that we have half of the year behind us, we are well on our way to achieving our 2011 goals. We experienced significant growth, both on top line and bottom line. We optimize and execute on opportunities, while at the same time mitigating the inherent challenges within our industry. The most significant of our opportunities in the second quarter was the earlier than expected launch of Budesonide capsules, the first generic version of this product to enter the U.S. market. Even though we had projected this launch to come later in the year, we were fortunate to be able to execute on this opportunity sooner.

We also were able to launch Cyclobenzaprine ER. And even though we were subsequently enjoined by the courts, customers have purchased substantial quantities of our product prior to the court's action. And of course, we were able to derive significant benefit from our first-to-file launch of Letrozole.

More importantly, we see many of these opportunities we realized this quarter as sustainable. And we continue to be very happy with the overall mix of our strong diversified base business in terms of both products and geographies. In fact, this quarter exemplifies how strong and diverse the platform we built truly is, as we continue to successfully absorb the macroeconomic headwinds outside the U.S.

With that said, in Europe for example, the long-term fundamental growth opportunities have not changed. What has changed is the timing. We now expect to see Europe to be flat to slightly lower in 2011, and instead fully expect this market to return to growth in 2012.

The real story here, however, continues to be our strong organic growth into 2013, which allows us to absorb these types of challenges while being able to forecast and deliver strong revenue and earnings growth. As reported in this morning's press release, we delivered revenue growth of 15% over the second quarter of 2010. We also delivered growth in earnings per share in excess of 40% as compared to the same quarter last year, reporting $0.42 in adjusted diluted EPS for the second quarter.

The fact that our business was able to perform the way it did, led by North America, continues to give us great confidence and not only the guidance for this year, but also our targeted compounded annual growth of 15% top line and 20% bottom line by the end of 2013.

As a result of our greater visibility into the remainder of this year and even taking into consideration some of the continued headwinds, we are tightening our 2011 guidance range to $1.95 to $2.05 for adjusted diluted earnings per share, and we are on track to hit the midpoint of this range with the fourth quarter expected to be slightly stronger than the third quarter.

With that said, it should also be noted that the opportunities for further upside to our midpoint might have been achieved had we not extended our expectation for Europe's rebound until 2012. Again, the fundamentals of our business are very strong and we are confident not only in 2011's guidance, but also in our outlook and targets for 2012 and '13. We anticipate 2012 to be another exceptional year of growth for Mylan, given the visibility we have around our significant product launches, especially in the U.S.

Further, given our confidence through 2013, you can expect that I will continue to focus my attention on positioning the company for 2014 and beyond. As a reminder, let me highlight some of the opportunities we see in 2014 and further into the future.

One of these key opportunities is Copaxone. We were very pleased to see the FDA deny Teva's citizens petition, third citizens petition, in relation to Copaxone. Amongst other things, the FDA rejected Teva's request that the agency convene a multi-disciplinary advisory committee to review ANDA's referencing Copaxone, finding the agency has sufficient expertise to deal with this. The FDA also noted that an ANDA opportune is not required to submit clinical studies to establish safety and efficacy. In relation to our patent litigation with Teva relating to Copaxone, the inequitable conduct trial ended last week and we await the judge's decision. If it is necessary, the trial on the non-infringement and invalidity will begin in September.

Our Dey franchise continues to represent another potential significant opportunity for Mylan. In addition to the continued strength of EpiPen and performance, we are very excited about the potential of our combo product that we now have in development. And we are fully confident in the intellectual property that protects our performance and the potential of our combo product until 2021.

In addition, we continue to make excellent progress in the development of our bio-generics program. And we still remain in a very good position to launch a portfolio of products in the U.S. and Canada, beginning in 2014 and '15 timeframe.

Turning to our balance sheet. We continue to have very strong cash flow generation, which will continue to give us tremendous amount of flexibility for the future. We were able to complete a $350 million share repurchase program this quarter, while still retaining over $400 million of cash on hand. This puts us again in a strong position to be able to capitalize on external opportunities that can augment strong organic earnings capabilities.

We will continually evaluate prospects that may provide entry into new therapeutic categories or dosage forms, enhance our existing product portfolio or provide access to new or existing markets. In terms of our expansion into new markets, we have taken and we'll continue to take steps to expand our global platform in key regions.

A great example of this is our planned entry into the finished dosage commercial market in India, which we announced in May. Given our already strong current presence in India, we're extremely excited about bringing our high-quality products to the Indian consumers. We expect to launch in India within the next 12 months.

Let me close by noting that Mylan is celebrating its 50th anniversary this year. And while the company we are today is very different from the one we were just a few short years ago, the foundation of our corporate culture and the values that we all share have remained intact since our founding. These values of innovation, integrity, reliability, service and teamwork remain critical to our continued success and ability to achieve our objective of helping provide the world's 7 billion people with high-quality, affordable medicines.

And while we believe that hitting this 50-year mark is an important milestone to acknowledge, we are still intent in continuing to make history. As I've said before, 2011 marks a key inflection point for Mylan as we now begin to fully realize the benefits of the very strong diversified platform that we have built and to take advantage of all of the opportunities which lie ahead.

And with that, I'll now turn the call over to our President, Heather Bresch.

Heather Bresch

Thank you, Robert. And good morning, everyone. As Robert said, we're very pleased with our second quarter performance and remain confident in our ability to deliver our stated 2011 guidance. In addition, we are excited about our visibility into 2012 and our growth potential through 2013 and continue to project earnings per share of $2.75 in that year. During the second quarter, we generated total revenues of $1.57 billion, a 15% increase over last year's second quarter revenues of $1.37 billion, and an increase of approximately 10% on a constant currency basis. On the bottom line, we delivered $0.52 of adjusted EPS, an increase of 41% over last year's second quarter results of $0.37 per share. These outstanding results were driven primarily by the exclusivity and timing of several key launches in North America which included Letrozole, Cyclobenzaprine and Budesonide. Our continued confidence on our 2011 guidance is based on a diverse platform we've created to help absorb adverse headwinds such as those experienced during the quarter in Europe.

Our continued success reflects the unwavering dedication and unmatched work ethic of our talented employees around the world. And I also would like to take this opportunity to sincerely thank them for their continued contribution.

Now I'd like to walk you through the performance of our Generics business by region and our Specialty segment. Starting with our Generics business in North America, third party net revenues for the second quarter were $749 million, up approximately 27% from the comparable year ago period result of $589 million. This very strong performance reflects multiple product launches made throughout the quarter and first half of the year, which included 8 limited competition products. In addition, we continued to be able to maximize opportunities as they presented themselves. For instance, we once again leveraged our ability to be a reliable supplier during market disruption, a good example being quantity. And as we already stated, we launched Budesonide earlier in 2011 than unanticipated. Moreover, Mylan Institutional continued to be a strong contributor, with growth coming from our injectable business. Currently, Mylan has 161 ANDAs pending FDA approval, representing more than $94 billion in annual sales. 43 of these are potential first-to-file opportunities representing nearly $26 billion in annual brand sales.

In EMEA, our third-party net revenues for the quarter totaled about $379 million, essentially flat compared to last year's second quarter results. On a constant currency basis, revenues in the region were down 12%. The decrease was driven by macroeconomic and political conditions across the region, which resulted in continued downward pressure on volumes and prices in a number of key markets, including France, Germany and Spain. In France, we saw government mandated products, which were ultimately dereimbursement. Germany continues to enforce a total tender system and in Spain, we continue to see aggressive movement to control costs. The sales decrease we experienced in EMEA was offset partially by continued market share gains in Italy. In addition, we continue to maintain our leadership position in France.

I would like to emphasize that we managed our business portfolio for sustainability and as such, continued to manage both the top and bottom line. We also believe that some of the irrational behavior we're seeing as certain competitors attempt to buy market share, especially throughout Europe, is not sustainable.

Nonetheless, as Robert noted, we remain confident in our ability to achieve $2 midpoint of our 2011 EPS range, and as well as our long-term targets for revenue and earnings growth of 15% and 20%, respectively, through the end of 2013. Further, though, we can't predict when the macro environment will begin to turn around or when irrational behavior will cease, we remain optimistic that our long-term fundamentals are intact in Europe. We believe our global diversity and horizontal and vertical integration are giving us the strength, endurance and flexibly to withstand the macroeconomic conditions, outlive irrational competitors and absorb the volatility that characterizes the industry. We fully expect to emerge from this challenging period even stronger and continue to believe that our business in the region will benefit from our unique platform and disciplined management approach.

Moving on to our Asia-Pacific region, we delivered total third-party revenues during the quarter of about $311 million, up more than 17% over last year's second quarter result of $265 million. On a constant currency basis, sales increased about 7%. The increase was due largely to higher third-party sales by Matrix. In Australia, we are still seeing increased pressure on pricing, offset partially by new product introductions. And in Japan, third-party net revenues were affected favorably by overall market growth, but we continue to expect a slow, steady climb in generic utilization over the long run.

Matrix delivered double-digit growth during the quarter and sales of both antiretrovirals finished-dosage-form generic products and API. Currently, Matrix's wide range of ARV products includes APIs and 35 first- and second-line finished doses, 9 of which are pediatric products. In an effort to continue meeting unmet needs, we are building upon this already strong franchise. For instance during the quarter, we reached an agreement with Bristol-Myers Squibb to expand access to the generic version of 3 of its ARV products and in July, we announced that Matrix now has an expanded licensing agreement with Gilead Sciences to produce generic brands of 3 HIV/AIDS therapies, once they receive regulatory approval.

We announced in late May that we intend to rebrand Matrix as Mylan. And as Robert mentioned, we also plan to commercially launch products [indiscernible] within the next 12 months. We look forward to bringing the benefits of our global operating platform to this very important emerging market. Finally, Dey, our Specialty segment, delivered a solid performance during the second quarter. Third-party revenues totaled nearly $132 million, an increase of about 6% over the $124 million we generated during the same period last year. The primary drivers of that growth were domestic sales of our EpiPen Auto-Injector and performance. We continue to believe that there are substantial opportunities to grow our EpiPen franchise, both in the U.S. and internationally. For instance, we expect to introduce our next-generation EpiPen in Australia and Japan in the coming months.

We also are in the process of launching direct-to-consumer advertising campaigns in the U.S. that aim to help educate consumers about the risks of anaphylaxis and the importance of being prepared. We also are encouraged by legislative initiatives in several states that will allow for undesignated epinephrine auto-injectors in schools. Throughout the remainder of '11, we look forward to voluminous launches of new products, including the rest of our limited competition offering, as well as generic versions of Caduet and Solodyn. Further, we believe our increased investment in our EpiPen franchise will continue to grow that marketplace. We also continue to be on track to meet our goal of internalizing 70% of the former Merck Generics portfolio by the end of 2013, which is especially important in Europe.

Turning to 2012, our confidence and visibility is stronger than ever. Not only do we remain on track to launch more than 500 new products, we expect their total sales value to be almost double the $400 million in revenues we expect to generate from our new product launches in 2011. Earlier this year, we shared with you the names of 13 of these expected launches throughout 2012, which represent nearly $24 billion in annual brand sales. Our exclusive or shared first-to-files are the generic versions of Provigil, Actos, Actoplus Met, Diovan. Other key anticipated launches include the generic versions of Lexapro, Plavix, Singulair and Singulair Chew, Avandia, Atacand, Clarinex 5mg, Zyprexa and Avalide. In summary, I'd like to echo Robert's point that as of the end of 2010, we believe that Mylan reached a new inflection point. Our results this quarter and year-to-date demonstrate the strong diversity of our platform and its ability to mitigate headwinds and benefit from tailwinds, while fueling very robust performance that will continue to generate growth throughout 2013 and beyond.

With that, I'll turn the call over to John.

John Sheehan

Thank you, Heather. I would like to begin by walking you through our financial results for the second quarter of 2011. These strong results were driven in part by the launches of several key products in North America, including Letrozole and Cyclobenzaprine, as well as Budesonide, which we were able to launch earlier than expected. Once again, we were able to maximize opportunities as they became available, providing us with a substantial financial benefit. This morning, I will also provide an update on our capital structure and liquidity position.

As Kris mentioned earlier, I'm going to be referring to actual and projected financial metrics that have been prepared on an adjusted basis. These are non-GAAP financial measures. We present these non-GAAP financial measures because they are prepared on the same basis as those used by our management and Board of Directors to evaluate the performance of our business. This morning's earnings release includes a reconciliation from our GAAP to non-GAAP financial measures for our second quarter and year-to-date 2011 and 2010 results. Our earnings release is available on our website, and I encourage you to review it.

Starting at the top of our income statement. Total revenues for the quarter were $1.57 billion, an increase of 15% over last year's second quarter revenues of $1.37 billion. Year-over-year, second quarter third-party net revenue growth on a constant currency basis was approximately 10%. The favorable effect of foreign currency translation primarily reflects the weaker U.S. dollar in comparison to the other functional currencies of our major operations. The increase in revenues was realized both by our Generics and Specialty segments. Within Generics, as Heather discussed, strong growth in North America, driven primarily by new product launches and positive constant currency growth in Asia-Pacific, and constant currency growth in Asia-Pacific served to offset the year-over-year constant currency decrease in sales in Europe.

For the 6 months ended June 30, 2011, total revenues were $3.02 billion, an increase of nearly 14% from the comparable prior year total revenues of $2.66 billion. On a constant currency basis, third-party net growth for the 6-month period was approximately 11%, also reflecting the weaker U.S. dollar in comparison to other functional currencies of our major operations. Our 2011 full year guidance range with respect to total revenues remains at $6.1 billion to $6.4 billion.

Looking at our operating profitability measures. Adjusted gross margin for the 2011 second quarter was a very strong 48.2% compared to 44.8% in the same prior year period. For the current year-to-date period, adjusted gross margin was 47.7% compared to 45.2% in the first half of 2010. This strong performance is primarily the result of the new product launches in North America and the contribution from Bioniche Pharma in our Generics segment, as well as favorable pricing on EpiPen in our Specialty segment. These factors, particularly our new product introductions during the first half of the year, should have an incremental positive impact on our adjusted gross margins throughout the remainder of the year. Although we do continue to anticipate our full year adjusted gross margin will be in the lower half of our guidance range of 47% to 49%.

Adjusted operating income was $385 million for the second quarter of 2011, a 30% increase from Q2 2010. This is primarily the result of the favorable gross profit, as previously discussed, partially offset by increased levels of spending on R&D and SG&A, which were $72.3 million and $301.6 million, respectively, both on an adjusted basis. Although R&D as a percentage of revenues was below 5% in Q2, this was the result of our strong quarterly revenues and the timing of development activities rather than due to lower levels of expenditures.

For the 6 months ended June 30, 2011, adjusted operating income was $724 million, an increase of 25% over the same prior year period, also mainly driven by the higher gross profit. Through 6 months, as a result of the strong first half revenue and timing of certain R&D activities, R&D expense is also slightly below our guidance range of 5% to 6% of total revenues, while SG&A is within our guidance range of 18% to 20% of total revenues.

Adjusted EBITDA for the second quarter and first half of 2011 was $438 million and $824 million, respectively, and remains forecasted to be between $1.55 billion and $1.75 billion for the full year.

Now let me move onto a couple of consolidated non-operating financial metrics. Adjusted interest expense for the second quarter of 2011 was $72 million. Despite higher overall debt balances as a result of our 2010 note offerings, we continue to benefit from short-term interest rates. As of June 30, 2011, the average rate on all of our outstanding borrowings was approximately 5.2%.

We continue to use interest rate swaps in order to maintain a 70-30 fixed-to-floating interest rate debt portfolio, which we believe is an optimal ratio of fixed-to-floating rate borrowings. Our adjusted effective tax rate for the second quarter was 27%. Our range for the full year is between 26% and 28%, and we believe it is possible that we will be at the low end of this range in the second half of the year and believe that our full year effective tax rate will be sustainable at this level going forward.

Second quarter adjusted net income was $232 million or $0.52 per share, a 41% increase from our Q2 2010 adjusted diluted EPS. For the 6 months, adjusted net income was $429 million and diluted EPS was $0.96 or a 32% increase from our 2010 6-month adjusted diluted EPS result. As Robert mentioned earlier, because of the increased confidence and additional visibility we have into our business, we are tightening our guidance range for adjusted diluted EPS for 2011 to $1.95 to $2.05 per share, while at the same time reiterating our long-term growth targets.

As announced last quarter, we implemented a share repurchase program in order to maintain discipline with respect to the number of outstanding shares. As we previously stated, we completed the plan during our second quarter, using our available cash on hand. We repurchased approximately 14.8 million shares at a total cost of $350 million or an average of $23.70 per share. Because the share repurchase program took place throughout the second quarter and is appropriately weighted in our calculation of second quarter diluted EPS, its full impact will be felt in our third quarter, where it is expected to help mitigate the dilutive impact of our options, convertible debt obligations and related work.

The share repurchase program was completed with no significant impact on our deleveraging strategy, including our goal of achieving a gross debt to adjusted EBITDA ratio of approximately 3:1, which we fully expect to accomplish in the next 12 months.

In addition, as the result of a robust quarter from a cash flow perspective, we were able to absorb the cost of the share repurchase program and still end the quarter with unrestricted cash and marketable securities totaling approximately $466 million.

Turning to our cash flow metrics. Excluding special items principally relating to payments of federal and accounted for litigation matters, our operating cash for the quarter was approximately $235 million. Our GAAP cash flow from operations was $189 million for the quarter ended June 30, 2011, and $143 million for the 6 months then ended. Our strong cash flow was realized despite an increase in accounts receivable due to the higher level of sales near the end of the quarter and increase in inventory to support future forecasted demand. We are still forecasting our full year 2011 operating cash, excluding special items, to be within our guidance range of $800 million to $900 million.

Second quarter and year-to-date capital spending was $70 million and $111 million, respectively. And we continue to forecast full year capital expenditures to be within our guidance range of $250 million to $300 million for the full year.

As all of our 2011 maturities under our credit facility were paid in 2010, we had no significant repayments of debt in the second quarter or 6-month period, and we continue to have no meaningful long-term debt maturity until the $600 million due under our convertible notes in the first quarter of 2012, which we currently intend to repay with available liquidity at that time.

Last quarter, I guided you to a stronger second half of 2011 as compared to quarters 1 and 2. We continue to expect our second half to be stronger than our first half, while maintaining $2 as the midpoint of our guidance range. Given the earlier than previously anticipated timing of product launches in Q2, we now expect Q4 adjusted diluted EPS to be slightly stronger than Q3, with Q4 being the strongest of the year. That concludes my remarks, and I'll turn the call over to the operator for Q&A. Melissa?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Shibani Malhotra of RBC Capital.

Shibani Malhotra - RBC Capital Markets, LLC

Could you explain in more detail what you think is happening in Europe and in particular, France? I think we just had a conference call with Teva, and I guess what they were saying is it's not so much of a share shift, but it's more of competitive pricing pressures and it's related to certain cases, I think they mentioned the Mediator case. So if you could explain that and kind of confirm that you're not losing share, it's just the competitive dynamic, and what do you expect will change this over time. And second, when you talk about your growth for Europe for this year, are you talking about constant currency or are you factoring the currency benefit that we're seeing?

Heather Bresch

Sure. I'll start with your second question, and what we had said is that we see year-over-year flat to slightly down as far as constant currency,

Robert Coury

On a constant currency basis.

Heather Bresch

Yes, on a constant currency basis. As far as France goes, I think there's a couple of dynamics at play. First, I want to reiterate that we have maintained our market share. We're holding as the leader in that market, with about 30% market share. So that has not changed. But to your point, what has changed is, as I stated in my remarks, is that not only a competitive landscape, but we see it as somewhat of an irrational. And I wanted to point out and emphasize that we're really managing top and bottom line. So while doing that and being able to maintain market share, our market share and maintain our year guidance to the midpoint of $2, we think all of that, combined shows again the diversity on what we've been able to maintain and absorb. I see that there is some overhang from the Mediator scandal that's going on in France right now. They put about 70 products on a watch list, and all that stems from a conflict of interest between the industry and AFSSAPS with a couple of the local participants in France. So they're really taking a hard look and I think that, that overhang lift as AFSSAPS gets comfortable with the remaining product line. And as far as -- we mentioned Spain, of course, having some pressures, but we do still see generic utilization increasing. We see nice market share continuing to increase in Italy. So again, in a substitution marketplace, we really see no fundamental change over the long-term. And so while some of these pressures are perhaps going a little longer than we have anticipated at the beginning of the year, nothing's changed as far as our long-term guidance and we still see a lot of opportunity in Europe as the macro environment lifts.

Shibani Malhotra - RBC Capital Markets, LLC

And can I just clarify, Heather, is there anything that has to happen, any event that can change the dynamics that are playing out right now? Or is it just going to be something that does change over time and we're just going to have to wait and see when it does change?

Heather Bresch

Yes, I think the wait and see is just really more the macro environment lifting in Europe. And that, I think, is going to be over a period of time.

Operator

Your next question comes from Marc Goodman of UBS.

Marc Goodman - UBS Investment Bank

I guess I just want to clarify. Originally, you had said that the second quarter was basically going to be like the first quarter. But it turns out that you need, probably pretty significantly what you were expecting. So I just want to make sure I understand, what was the upside expectation that occurred? And did some of that take away from the second half? I understand how you mentioned the guidance and how you're playing to the midpoint because of Europe, but just specifically, like second quarter and how that impacted. And then if you could talk about Asia just a little bit more. I just want to understand, is Australia actually growing in revenues? I mean is -- or is that a declining market? And how should we think about how India comes into play? I mean, is this such a thing, Robert, that you're going to be doing $10 million to $20 million in year 1, and you think you can get to $100 million business within 5 years or 3 years? Or just help us frame how fast you think India kind of ramps up.

Heather Bresch

Okay. So maybe I'll start off and then let Robert and John fill in. As far as your timing question, it was just that. As Robert mentioned in his opening remarks, we saw a couple of dynamics happen, especially with the U.S. business that just pulled up some revenue. Those came from, again, the earlier than expected launch of Budesonide, our launch of Cyclobenzaprine and what we were able to accomplish before the injunction. And then the third piece was our Letrozole. Again, there wasn't an AG [ph] that launched with us, so we had some favorability on that product and gained some, obviously, good pricing and good market share. So all of those things contributed to obviously a stronger than anticipated Q2. And that's why, as we pointed out, still looking at our guidance to the midpoint of $2 and still having a stronger than -- a second half of the year. But some of that opportunity was pulled into Q2, as you can see with our results today. I think quickly on the Australia point, we do continue to see that market evolving towards the distribution marketplace. As far as the pull through of product, we continue to see utilization increase. We've had, as I mentioned, product launches partially offset some of the pricing pressure we see. But we continue to anticipate pretty significant pricing pressure and I would say overall, that marketplace, all things being equal on a constant currency basis, is, I would say, about flat to slightly down as far as a -- from a growth trajectory for this year.

Robert Coury

In terms of India, I'm not prepared to go into numbers right now, but it will all depend upon how we decide to launch, whether we launch in the Tier 1, Tier 2, Tier 3 playing field. And all of that is being formulated. That's why I said in the next 12 months, you can fully expect us to launch. At what tier we launch will all be dependent upon a lot of the work that's being done right now, Marc.

Operator

Your next question comes from Gregg Gilbert of Bank of America Merrill Lynch.

Gregory Gilbert - BofA Merrill Lynch

I have a couple. Can you quantify Express and Medco as a percentage of your business for North America? Second for John, SG&A was quite high in the second quarter. Just forgetting about ratios, can you talk in absolute terms about what may have been not sustainable on that number as we think about the remainder of the year for SG&A? And Rob, do you still have a goal to achieve more balance between brands and generics for Mylan as you look out over the next couple of years?

Heather Bresch

Sure. I'll take the Medco/Express Script. It's low single digits, between 3% and 5% of our business. They're both very good customers of ours and as always, when you see a consolidation, that can continue to change the dynamics of a certain market. But as like I said, it's between 3% and 5% for us.

John Sheehan

And on the SG&A side, Gregg, I would really point to timing of certain employee accruals and really, timing of expenditures. In addition to that, we're in the process of launching a direct-to-consumer campaign, especially over on our Dey specialty-branded business. And that also drove the higher SG&A. But we still feel very confident about the guidance range we have with respect to SG&A.

Robert Coury

And in terms of the word balance, Gregg, I think the word balance is in the eyes of the beholder or in with every particular company. I would not necessarily balance -- I don't want people to think it means 50-50 exactly. What I would say is that, that Dey asset we have, we've been kind of sort of incubating, and we are fully committed behind the future of this Dey asset. I can tell you that it's going to be a significant growth driver for Mylan in terms of everything that we've been working on. This year, 2011, is a significant year for that asset. But we fully expect to hear from the patent trademark office like any moment right now in terms of the, our patents coming out of reexamination. We're extremely confident that they're going to be upheld. With that said, that can move us right into the trial with a separate core on the pro bono product. It's also going to be extraordinarily important that the challenge that Teva has against our Paragraph IV, we believe all that can be settled in a very short period of time, only further bolstering the future of that Dey asset as we continue to not only execute on what we already have, but yes, you can expect me to concentrate on adding to what we already have as well.

Operator

Your next question comes from Chris Schott of JP Morgan.

Christopher Schott - JP Morgan Chase & Co

I just have a couple of questions on Europe. In terms of the EU growth dynamics here, can you help us better understand the timing of when new launches could begin to offset some of the weakness you're currently seeing? Is that something that happens in all of this year? Is that really a 2012 event? And then thinking longer-term about Europe, once some of these near-term issues normalize, is Europe -- is it a mid-single-digit growth business longer-term for you? Is it something higher than that, lower than that? And then just as a final question here, Germany, do you feel you have the scale you need to effectively compete in the market at this point?

Heather Bresch

So what I would say, as far as the growth dynamics, we've been on track with our launches and do have -- had some good marketing in Q2 that we see getting the full benefit of in Q3, Q4. We do see Europe having a stronger second half of the year than they did first half of the year. So we absolutely still see some important launches. And then again, going into 2012, we have over 300 launches in that region. So with the pipeline, it's very good, as I've said. An important, I think, material matter for us is the fact of our internalizing our products. So we're almost up to 50% of our current launches being internal product, and as you know, obviously, a much more favorable cost of goods. So as that dynamic continues to enhance, that again continues to increase the contributions from these new launches, which we do continue to see growing. So that's what I would say overall. As far as Germany is concerned, I think, what we have been saying is that, that market is going to just eventually be 100% tender. I think you've seen recent actions that the German government is taking to really test compliance with the tenders, which continues to deteriorate the retail business. So as you've heard us say before and Robert mentioned, getting a breadth of our product line in a position that it is high quality and competitive, we should be able to bring in that market, our scale, our full benefit of our global scale and capacity and volume and continue to compete in that market. I think it's just going to be about competing with high-quality products. And I, again, think some of the things that you're seeing with competitors in that market, as we're seeing in France, is not sustainable. We're again managing top line, bottom line. And I think there's a lack of sustainability with what some of these competitors are doing, especially the local players.

Operator

Your next question comes from Elliot Wilbur of Needham and Company.

Elliot Wilbur - Needham & Company, LLC

I just wanted to clarify with respect to limited competition launches over the balance of the year. Can you just remind us of how many additional launches you still have in queue? And also, specifically with respect to Doxycycline, 150 mg., that wasn't one of the launches that you had sort of called out at the beginning of the year. So I suspect it was probably near your numbers to some extent. But now that you have tentative approval and looks like you may have moved into a more favorable launch position, just wanted to confirm that, that is in numbers at least to some extent. And also for Robert, just thinking about Europe more big picture-wise, given some of the, I guess, evolving pricing dynamics and the like, how much tactical flexibility do you have in terms of cost containment and the expense reduction, just sort of minimize the margin hit, beyond what you've already taken to date?

Heather Bresch

So let me take competition launches. We do have -- I had mentioned that we will have about 15 this year. We've launched 8, so we still are on track for 7 more for the second half of the year. And as far as direct, we are anticipating a launch for the second half of this year as well.

Robert Coury

I mean in terms of Europe, I think we -- as I mentioned in my prepared remarks, I think we have all the firepower that we need. I would classify Europe right now, nothing shocking. I would classify it as the beginnings of what I call a shakeout. As you've heard my commentary in the past, Europe is bound to head for the have and have-nots and those who can survive and those who can't. And I think a lot of the activities that you're seeing is all part and parcel of what we foresaw in terms of what has to happen. So I do think it will open up the doors for some tactical opportunities. I don't want to think that and I don't believe it's appropriate to think that Europe -- that driving the businesses growth should only come from a cost-cutting measure. I think that's a very, very weak growth story. So we are balancing between what we need to do within the integration period to appropriate, right-size that European platform. We still have some work left to do, but yes, I do see there are some real tactical opportunities, and I also see that going to be reflected in the valuations going forward.

Operator

Your next question comes from Ronny Gal of Bernstein.

Ronny Gal - Sanford C. Bernstein & Co., Inc.

Two questions. First, can you give us a little update on the situation with the [indiscernible] patent challenges? And second, Robert, you mentioned the possibility of launching biosimilars in 2014, 2015 in the United States. And is that referring to antibodies or does that refer to non-antibody product? And last, when do you expect to have another product coming out of the Dey division, essentially another launch from that business?

Heather Bresch

Ronny, I'll start with your last question. As we've stated before [indiscernible] product in our pipeline, that we anticipate bringing into market early 2015. And -- but again, we continue to look for, perhaps, complementary opportunities for that platform. As far as your first question, we don't really comment on products we have in development or other people's litigation status. There's really nothing to mention on Midodrine. And your -- what was your second question?

Robert Coury

The timeframe on the biologics. I think the '14 is more, I would say, x U.S. And we fully anticipate to always launch x U.S. first, and then in the U.S.

Operator

Your next question comes from David Risinger of Morgan Stanley.

David Risinger - Morgan Stanley

I have a couple of questions. First, with respect to Amrix revenue, I'm assuming that you booked all of that in the second quarter, but maybe you can correct me if I'm wrong, that some may continue in the third quarter. And then second, you obviously disclosed that FX contributed $71 million to the top line. Just wondering if you can provide us with the EPS benefit from FX this quarter. And then finally, with respect to Asia-Pacific, could you just comment on the growth outlook, constant currency, for the second half of the year, please?

John Sheehan

I think with respect to the FX, while we don't disclose the profitability of our non-U.S. operations, what I would say to you is that the FX impact on the bottom line was not significant or not overly significant. I would also remind you that we have $1 billion of our borrowings in euro, which does even to the FX impact going the other way.

Heather Bresch

And as far as Asia-Pacific goes, we do continue to see growth, double-digit growth there. And really being driven again by Matrix.

John Sheehan

And I'll come back to the Amrix point, sorry. We are recognizing revenue on products as shipped. And the only product that we have deferred the revenue on was the one we did with respect to Minocycline last year.

Operator

Your next question comes from Tim Chiang of CRT Capital.

Timothy Chiang - CRT Capital Group LLC

Robert, you talked a little bit about irrational behavior in Europe, that there is a shakeout going on. I mean, how long do you think realistically this shakeout process will be? I mean is it a 6-month process, a 2-year process? I mean is this -- if you could provide some color, that would be great.

Robert Coury

Yes. I mean, we are -- I don't see this -- I see this as not being an overnight answer. I see that, to us, it's just simply balancing between the number of product launches that we have, the ability to balance between market share and profitability, and I can't stress that enough. We're not going to buy market share just for the sake of buying market share because our story is a organic growth story. We laid down and said that we are committed to the earnings per share growth. And everything that we do, our complete mindsets are managing earnings per share for the entire company, a global asset. So how we balance that is really, that's really what matters. What goes on in a particular region, when we gave our guidance range, we're not giving our guidance range for Europe. We're giving you, and giving you visibility and transparency and giving you what management has very successfully done over the last 15, 16 quarters, is tell you what we see in the business going forward and what we think the earnings potential is out of that particular business. So I will tell you that, remember also that I said, in the United States, if you want to know kind of sort of how we balance a little bit in terms of managing, you do a little bit in the United States and you get an awful lot. In Europe, you do an awful lot and get a little bit. So I think the overemphasis on Europe is really, I would say there's too much emphasis being put on Europe. And I would strongly suggest that investors take a look at the entire global asset of each particular company and the ability to drive earnings growth with the entire asset. And that's basically how we manage. So to us, it's not relevant. If it does -- look, if there's any benefits that come from Europe to us, it's only going to be additive to what we've already projected for you. Because we've taken fully into consideration, at least what we could see for right now, in terms of the actions that we see some of our competitors are taking over there.

Operator

Your next question comes from John Boris of Citi.

John Boris - Citigroup Inc

First one for you, Robert, on Copaxone. The outcome from the inequitable conduct trial, how would you characterize the outcome there? You set aside with it, and how do you think that shapes the judge’s opinion going forward as you go into the non-infringement and invalidity arguments? And then I have a follow-up for Heather.

Robert Coury

Sure. Well, I think that's a loaded question for me, John, as you probably know. Because when I've seen some of the analyst reports, especially some of the reports that came out and said well, we're not even going to show up after day 2 because this is all but done. I just think once again, it's an extremely irresponsible position to take. I think that this judge, and I'm not just saying this, this judge is one of the most thorough judges I have ever seen in the 10 years I've been in this role. I have never seen a judge this attentive, this engaged, this involved, very precise. I don't think she's showing her hand one way or the other. I can only observe by the type of questions that are being asked where her interest lies. And for those who didn't enter the courtroom or did not want to come in after the first 48 hours, probably missed the most important aspect of the inequitable conduct trial. And that was during the closing arguments when the depositions of other people that were in the room with Dr. Pinkazi [ph] who stated completely the opposite of what she testified to. And so, look, we are very well aware of the threshold and the hurdles in the standards now in the inequitable conduct case. But I have to tell you, we have very, very thoroughly done our diligence, and I think we laid out a very strong straightforward case to the judge. And I think the judge got a lot to think about. In terms of what we gained by having the inequitable conduct trial first, I mean, to me, I'd call it a blessing. It was Teva that chose to have this trial separated and to have the inequitable conduct trial first. Tactically, I'm not sure I would have done that, that way, but I can tell you that we gained a significant amount in terms of being able to have that trial first, and only added to the strength, I believe, we already had going into the invalidity trial and the non-infringement trial in September. So I'm very, very confident, I'm extremely excited about where we stand there, and that's all I have to say for now.

John Boris - Citigroup Inc

And, Heather, just to follow up, you described in your remarks, irrational behavior in the Generics business in Europe. That certainly appears to be unstable or unsustainable. Can you maybe provide some commentary or give a practical example to wrap around those comments? And then secondly, on the cost structure. Obviously, the cost structure is a lot larger than the U.S. cost structure. How do you see that being shaped going forward as a result of some of this irrational behavior, both in the near and long term?

Heather Bresch

So I guess to give a practical example, the best way to describe it is, obviously, given some competitors' different dynamics about how they report their businesses, you can show top line revenue growth if you're not remotely needing to worry about the profitability of that turn. So for Mylan, the visibility as far as our managing the top and bottom line, I think, is very evident. We don't have other large brand products or brand portfolios that can absorb whatever profitability or lack of profitability you're deriving from just focusing on driving that top line revenue sales. So that's what I would say when I'm saying irrational behavior in Europe. I think that what's important to note is that I don't believe that's sustainable. And I believe that especially in a marketplace like Europe where some -- a price control's perspective, you can't -- it's not like the U.S. market that when market share shifts or you have a disruption in market share and the ability to raise prices sometimes. That doesn't exist in Europe. So the players that are going to buy it and think that they're going to be able to reclaim or grow earnings from that at a later point in time, I think, is a pretty impractical approach to Europe. So we believe, again, the scale that we've created, being able to bring global scale, our cost of goods structure, as I mentioned, bringing, continuing to internalize products is very important to our platform in Europe and our launches going forward. I said that new product launches in 2012 would be almost double from a value perspective as they were to us in 2011. And Europe is also certainly a part of that in getting growth from new product launches. So I think overall, that the Mylan's [indiscernible] will be very sustainable and we're going to survive the macro trends, as well as the irrational competitor behaviors. And I think that certainly local competitors as well as regional competitors are certainly not going to be able to remain competitive with these dynamics. So I think as that marketplace continues to consolidate or people are forced to have a more rational approach, that's when we'll continue to see the timing and our growth trajectory start moving in the right direction.

Operator

Your next question comes from Michael Faerm of Credit Suisse.

Michael Faerm - Crédit Suisse AG

My question's on capital allocation. Now with the share repurchase behind you, how do you think about your priorities for capital allocation outside of debt repayment, be it acquisitions, other types of deals and so on?

Robert Coury

I think you just answered your own question.

John Sheehan

I think [indiscernible] yes, because by the end of this year, just through the growth in EBITDA, we will be at 3:1, and we are very comfortable with that leverage ratio and therefore, the $500 million a year of free cash flow is available to us for capital allocation purposes.

Robert Coury

And you can fully expect us to put that to work.

Michael Faerm - Crédit Suisse AG

And in terms of priority though, are there any specific areas, be it geographic or...

Robert Coury

Here's where I can guide you. There's a number of opportunities that are at the table. I don't think -- one, what I would guide you is I don't think, one, I don't think we need anything more strategic. I'm extremely focused on more of the financial acumen of some of what I see out there. So I'm not sure one is over the other. We do have internal competition to justify why one project is better than the other. And I will tell you, again, I don't see anything strategic, I do see more of a financial acquisitions, bolt-ons, add-ons to augment our very strong organic capability of generating earnings.

Operator

Your final question comes from Louise Chen of Collins Stewart.

Louise Chen - Collins Stewart LLC

First one on generic Solodyn opportunity that you've mentioned. Given that Medicis has moved most of their patients to new formulation, is this going to be an incremental opportunity for you? Or are there other strategies that you could employ to capture greater share of the overall Solodyn franchise?

Heather Bresch

Yes, I think it's both. I think it's going to be a good launch for us. And I think you pretty much nailed it, that it's not any one strategy. It's our ability to really, I think, garner the market share that we normally do on our product launches around 40%, and being able to look at other dynamics within some of the channels to be able to offset some of the brands tactics around that product.

Louise Chen - Collins Stewart LLC

And second question I have is on Bioniche. Is there any way that you can provide an update on that business? And what are some potential key new product launches? And what kind of growth prospects do you expect for generic injectables going forward?

Heather Bresch

We don't breakout the segment or that figure. This is what I can tell you is we're very pleased with the performance of that acquisition. It has exceeded our internal expectations. And as we've said before, we see it not only as an important precursor as we build our hospital, institutional business, getting ready for the biologic platform. But we do see some good Niche products that we have coming up the second half of this year and into next year that again, kind of fit right in the sweet spot of Bioniche and have some nice exclusivity to them so...

Robert Coury

Right. And I think we disclosed at the time we made the acquisition in the latter part of last year that they had 40 products under development, and they continue to be under development and being launched.

Operator

At this time, there are no further questions. I'll now turn the floor back over to Mr. John Sheehan for any closing remarks.

John Sheehan

Thank you very much. We appreciate the support of our investors and we will close out the call. Thank you, operator.

Operator

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

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