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Executives

Heather Bresch - President and Director

Robert J. 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

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

Marc Goodman - UBS Investment Bank, Research Division

Randall Stanicky - Canaccord Genuity, Research Division

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Elliot Wilbur - Needham & Company, LLC, Research Division

John T. Boris - Citigroup Inc, Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

Mylan (MYL) Q3 2011 Earnings Call October 26, 2011 8:30 AM ET

Operator

Welcome to Mylan's Third Quarter Earnings Conference Call and Webcast. Hosting the call today from 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 Standard Time. The dial in number is (800) 585-8367 and enter PIN number 12176566. [Operator Instructions] It is now my pleasure to turn the floor over to Kris King. You may begin.

Kris King

Thank you, Jacky. Good morning, everyone. Joining me for today's call are Mylan's Chairman and Chief Executive Officer, Robert J. Coury; President, Heather Bresch; Executive Vice President and Chief Operating Officer, Rajiv Malik, Executive Vice President and Chief Financial Officer, John Sheehan; and President of North America, Hal Korman.

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 June 30, 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. 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 earnings press release which is available on our website, as it contains detailed GAAP to non-GAAP reconciliations of our actual third 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 be rebroadcast without Mylan's expressed written permission.

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

Robert J. 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. Through their passion for excellence, unwavering dedication to doing things right and tremendous hard work, we have once again delivered very strong results. On behalf of the Board of Directors and our entire management team, I would like to thank each and every one of them.

I would also like to take a moment to acknowledge the passing of Mylan's cofounder, namesake, and former Chairman, and Chief Executive Officer, Mike Puskar. Mike was truly one of a kind. He had a meaningful impact on each and every one of us here at Mylan. Directly and indirectly, we are deeply saddened by his passing. Mike's philosophy was do it right or don't do it at all. And this powerful but simple idea has been ingrained into the Mylan way of doing business. We are extremely grateful to Mike for his many contributions to Mylan, our community, our industry, and the people around the world who rely on our products. He will be missed by those who had the privilege of knowing him, but his legacy will live on. I also would like to thank all of you who have reached out to express your own condolences. It was appreciated.

With that said, and looking to the future, today's another exciting day in Mylan's history. As you have seen from our press release this morning, we announced a new expanded management structure for Mylan, which will be effective as of January 1, 2012. At that time I will transition to the role of Executive Chairman of the Board. Mylan's President, Heather Bresch, will become Chief Executive Officer, reporting directly to the Board of Directors; and Chief Operating Officer, Rajiv Malik will be promoted to the role of President. Further, Hal Korman, currently President of North America, will be promoted to the Chief Operating Officer; and Tony Mauro will be promoted to the President of North America, while also retain his current role as President of Mylan Pharmaceuticals.

I am truly excited about this enhanced leadership structure, a structure which reflects long-standing commitment to broadening and strengthening our management bench and to developing our internal talent. Further, I believe that this new structure will most effectively serve the needs of both the company we have become and the company we expect to be in the future. It has been my honor and privilege to lead Mylan as Chief Executive Officer for nearly 10 years. Over the course of my tenure, we as a company, have accomplished each of the strategic priorities we set for ourselves, and I have never been more confident in Mylan's position and future growth potential than I am today. In my capacity as Executive Chairman, among other things, I will continue to provide active ongoing strategic leadership to the company. Specifically, I will continue to lead the Board of Directors and provide guidance to senior management. I will also continue to lead strategic business development initiatives and communicate with our shareholders and other key constituents. But most importantly, I will continue to stay close to the people of Mylan and play an active role in talent management around the globe.

Most of you listening today already know Heather well, and will share the board and my enthusiasm and absolute confidence in her as Mylan's next CEO. In her almost 20 years at Mylan, Heather has immersed herself in every key area of our business and distinguished herself as the leader within the generics industry. She has unmatched knowledge of Mylan and the industry, and has demonstrated extraordinary passion, dedication and leadership in executing our strategic goals. Heather has an impressive track record and an exciting vision for the future, and I will look forward to continuing to work with her to achieve that vision.

As most of you know, Rajiv joined Mylan through the acquisition of Matrix and has served a vital member of Mylan's executive leadership team. Since joining Mylan, Rajiv has worked tirelessly, alongside Heather and myself, to integrate our acquisition and create one seamless global platform. He also has played an instrumental role in many of our key business initiatives, particularly on the business development front where he has helped identify and execute on many of the strategic priorities to ensure the future success of our business.

Hal, over the course of his 23 years with Mylan, has demonstrated a track record of delivering outstanding results in North America and adapting to an ever-evolving business conditions. Hal's strong commercial experience, customer insights and business acumen will provide tremendous added value to our global senior management team in his new role.

Tony has been with Mylan for 15 years. He, too, has a proven track record of results during his tenure, as Chief Operating Officer of Mylan Canada and his leadership in the U.S. business, Mylan Pharmaceuticals. Tony has demonstrated deep knowledge of the generics industry, strong business instincts, and ability to act quickly in response to new opportunities. He also has served as the Vice Chairman of the Board of Directors of GPhA, working alongside Heather to support the interest of our industry in the Mylan's U.S. business. I believe our entire North American operation will benefit from Tony's great leadership and passion for excellence.

I would like to turn congratulate Heather, Rajiv, Hal, and Tony, and note that they represent just a few of the impressive leaders across our organization. Given each of their track records at Mylan, I am extremely confident in their ability to succeed in their respective new roles, and certain that this will be a seamless transition. They are, without a doubt, the right leaders to work alongside the board and myself to continue to take Mylan forward. In order to allow you to get to better know these and other key members of our management team, as well as to provide you with greater understanding of our longer-term business initiatives and growth drivers, we will be hosting an Investor Analyst Day early next year in conjunction with our fourth quarter results. You will receive more details about this as the date approaches.

Now turning to the third quarter of 2011. As you saw from this morning's press release, we once again delivered a strong quarter of top line and bottom line growth, and continue to benefit from the scale and diversity of our global platform. Revenues in the third quarter were up more than 16% over the same quarter in 2010. Adjusted earnings per share grew 28% over last year, coming in at $0.55 for the third quarter. While the vast majority of our business performed well this quarter, I particularly want to highlight the strong performance by our specialty subsidiary Dey Pharma. As a result of an impressive execution by Dey, this business has really begun to accelerate and continues to be an important growth driver for Mylan, one in which we will build upon. In other developments at Dey, the U.S. Patents and Trademark Office recently issued re-examination certificates for 2 patents relating to our performance product. Sepracor, now known as Sunovion Pharmaceuticals, have requested the Patent and Trademark Office to re-examine these patents, and with the process now complete, the validity of these patents has been reaffirmed. We have always been confident in the strength of the intellectual property protecting our performance product, as well as our combo product currently in development, and this only bolsters that confidence. As you will recall, now, we have pending litigation against Sunovion, and this trial has now been set for March 5, 2012.

With the visibility of now having 3 quarters of the year behind us, we are further narrowing our guidance range to $1.98 to $2.02 for adjusted diluted earnings per share, and maintain a midpoint of $2 per share. This does not include any potential contribution from generic Doryx 150 milligram or any potential contribution from a Lipitor launch. As to Doryx, we believe the district court erred in issuing an injunction in relation to our generic version of this product, and we are pleased that the Federal Circuit has granted an expedited appeal. All arguments in the appeal are scheduled for November 22 of this year. We are confident that we will prevail on the litigation relating to this product and are still aiming to launch generic Doryx 150 milligram product in 2011. In the event that we are successful, this product will now represent a potential upside opportunity in the current year.

Mylan has now clearly demonstrated, over and over, that it is much, much more than any one product or any single geography. This is because we have built a powerful, global, diverse platform with an ability to absorb much of the volatility and unpredictability that are inherent in our industry, while still allowing us to deliver consistently strong growth. We see our strong growth continuing as we move into 2012 and beyond. Next year, we anticipate launching more products than ever in the company's history and almost doubling new product launch revenue. As such, I would like to once again reaffirm our projected compound annual growth of 15% top line and 20% bottom line by the end of 2013.

With that, I'd now like to turn the call over to our President and now CEO-elect, Heather Bresch.

Heather Bresch

Thank you, Robert, and good morning, everyone. We definitely had a great quarter, and our ability to keep exceeding expectations continues to show the resiliency of our platform in its ability to serve the inherent volatility of our industry globally. As always, credit for our ongoing success belongs to our talented employees around the world, whose unmatched commitment to excellence and strong work ethics are among Mylan's most important assets.

During the third quarter we generated total revenues of $1.58 billion, a 16% increase over last year's third quarter revenues of $1.36 billion and an increase of approximately 13% on a constant-currency basis. On the bottom line, we delivered $0.55 of adjusted EPS, an increase of almost 30% over last year's third quarter result of $0.43 per share.

Now I'd like to walk you through the performance of our generics businesses by region and our specialty segments. Starting with our generic business in North America. Our performance was once again very strong. Third-party net revenues for the quarter were $697 million, up nearly 22% from last year's third quarter result of $573 million. This performance was driven by a stable base business and multiple new product launches. I'd also note that year-to-date we have launched 9 limited competition products and we remain on track to launch a total of 15 by the end of the year. Our results in the region also benefited from the contribution of Bioniche, the specialty injectables arm of our Mylan institutional business. During the quarter, Bioniche enjoyed very strong sales of Ultiva, a branded anesthesiology product. The business also was able to step in and reliably supply the marketplace with key products during periods of shortage or disruption.

In Europe, our business performed as anticipated. Third-party net revenues for the quarter totaled $351 million, a 3.5% decline compared to last year's third quarter result. On a constant-currency basis, revenues in the region fell 11%, due mainly to France. Nonetheless, we held on to our leadership position in France while we continued to diversify and grow our European country portfolio. During the quarter, we realized year-over-year constant currency growth in 10 of our 19 markets, led by our performance in Italy. We are no longer going to try to predict when Europe will stabilize, however, we will continue to give guidance on a global basis that takes this as well as many other factors into consideration.

Moving on to Asia-Pacific. We delivered total third-party revenues during the quarter of approximately $311 million, up 16% over last year's third quarter result of $268 million. On a constant currency basis, sales rose about 8%. The increase is due primarily to higher third-party sales from India, especially double-digit growth in sales of our ARV products. As you may have seen last week, we announced that we have completed the name change of Matrix to Mylan Laboratories, which will allow us to operate in India under a single brand and help lay the groundwork for our commercial launch in that market next year.

In Australia, new product introductions partially offset lower pricing and volume on existing products, and we remain the market leader. In Japan, third-party net revenues were favorably affected as the overall generics market in our business there experienced local currency growth in excess of 10%.

Dey Pharma, our specialty segment, delivered an exceptionally strong performance during the third quarter. Third-party revenues total $214 million, an increase of nearly 52% over the $141 million we generated during the same period last year. We are seeing tremendous returns on the ambitious plans that we set out early in the year to expand the EpiPen Auto-Injector market in the U.S. Growth, in both value and volume, resulted in quarter-over-quarter growth of 50%, and our market share has returned to 98%. We don't see this momentum stopping. Also driving this strong quarter is our performance through third quarter -- third quarter sales grew 20% over the same period last year.

In terms of Q4, the tightening of our range speaks to our confidence in achieving our guidance. The approval of Doryx and/or Lipitor would represent upside in excess of our current guidance range. We see this momentum continuing to accelerate in '12 as we have discussed before. Next year really seizes upon a record number of global internal launches and certainty around key products in the U.S. Similar to this year, we anticipate launching more than 500 products globally in 2012 and expect that their total sales value would be almost double the $400 million in revenues we expect to generate from our new product launches in '11. With that being said, as Robert stated, we are not dependent on any single product or geography.

Here is some visibility into the timing and nature of several of our most of our 2012 launches. The following products represent approximately $22.5 billion in annual brand sales in the United States. In February we anticipate launching the generic of Lexapro exclusively for about 2 weeks before expiration of pediatric exclusivity. We will then share the market with the first filer until September 2012. This should support an exceptional first quarter. In April, we anticipate launching generic Provigil per our settlement agreement. That same month, we anticipate launching generic Zyprexa, following the expiration of the first filer's 180. In May, we anticipate launching generic versions of Plavix and Viramune. We anticipate launching the generic version of the 5 milligram strength of Clarinex. In July, our settlement agreement with the innovator. It will be a shared first-to-file with several competitors. In August, we anticipate launching generic Actos per our settlement agreement. This part is also a shared first-to-file. That same month we anticipate launching our versions of Singulair and Singulair Chew, both at market formation, upon the expiration of pediatric exclusivity. In September we expect to launch generic Diovan HCT, where we are the sole first-filer, and anticipate launching generic Avalide and Avapro, both on day 181. In December, we anticipate launching generic versions of Actoplus Met and Atacand HCT, where we believe we are the sole first-to-filer on each. In addition to these key launches, we also expect to launch more than 15 limited competition products in the U.S., as well as a voluminous number of other products. Combined, the annual brand sales for these launches total $20 billion.

We also expect strong growth in our institutional business, it's all Teva product, which is patent protected through 2018, is further solidifying as a core brand product in the anesthesiology category. And just as we experienced from 2010 to 2011, we anticipate 2012 year-over-year growth of about 25%. In Canada we look forward to launching 20 products, more than we've ever launched there in our history. Among the 20 are generic versions of Crestor and Plavix. We also expect to launch our generic of Lipitor throughout Europe, including Italy and France.

This visibility should provide confidence in our ability to deliver on our stated growth targets of 15% top line and 20% bottom line at the end of 2013. Our continued ability to deliver results demonstrate the diversity, scale, and strength of our global business and is the foundation for sustainable growth well beyond 2013. With that, I'll turn now turn the call over to John.

John Sheehan

Thank you, Heather. This morning 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, and I refer you back to Kris's comments at the beginning of the call.

Let me begin by saying that I'm extremely pleased with our very strong Q3 results, which were driven by our North American generic operations and our specialty segment, with specialty also primarily responsible for our robust performance sequentially. As Robert and Heather pointed out, Mylan's diverse global platform does not rely upon one product or even a small number of products, one region or business, or one cost savings initiative to be successful. Rather, the diversity and ability of each of our businesses and geographic regions to seize on the opportunities in its market, has allowed us to reliably do what we say we're going to do quarter in, quarter out. In past quarters this year, our North American operations and our API, and ARV lines in India, have been significant contributors. This quarter, Dey Pharma, our specialty branded business, has delivered a performance in excess of our high expectations, and above and beyond the seasonal aspects of that business.

Now getting into the details. Let me walk you through our financial results for the third quarter of 2011, and I will provide an update on a -- also provide an update on our capital structure and liquidity position. Starting at the top of our income statement, total revenues for the quarter were $1.58 billion, an increase of 16% over last year's third quarter revenues of $1.36 billion. Year-over-year, third quarter net -- third-party net revenue growth on a constant-currency basis was approximately 13%. For the 9 months ended September 30, 2011, total revenues were $4.6 billion, an increase of nearly 15% from the comparable prior-year period total revenues of $4.02 billion. On a constant-currency basis, third-party net revenue growth for the 9-month period was approximately 11%. The favorable effect of a foreign currency translation on both the 3- and 9-month period primarily reflects a weaker U.S. dollar in comparison to the other functional currencies of our major operations. For the full year, we are narrowing our 2011 guidance range with respect to total revenues to be between $6.1 billion and $6.3 billion.

Looking at our operating profitability measures, adjusted gross margin for the 2011 third quarter was a very strong 48.5% compared to an equally strong 48.4% in the same prior-year period. For the current year-to-date period, adjusted gross margin was 47.9% compared to 46.3% in the comparable prior-year period. Our strong current quarter margin are primarily the result of favorable pricing and volume on EpiPen in our specialty segment. This, along with new product launches in North America and the contribution from Bioniche Pharma and our generic segment, were the main drivers of the increase in margin on a year-to-date basis. From a cost of goods sold perspective, the impact of cost-saving initiatives on our North American operations and increased levels of production in our Napa, California manufacturing site, both served to reduce cost and contribute to increased gross margin -- profit. These factors should continue to have an incremental positive impact on our adjusted gross margins in Q4.

Adjusted operating income was $388 million for the third quarter of 2011, a 17% increase from Q3 2010. This is primarily the result of the favorable gross profit I discussed previously, partially offset by increased levels of spending on SG&A which was $307.5 million on an adjusted basis or approximately 19.5% of total revenues. Increase in SG&A spending in 2011 is due in large part to our direct-to-consumer advertising campaign with respect to EpiPen, which has resulted in both higher volumes and increased market share for the product. Adjusted R&D expense was $68.7 million, consistent with the prior year and approximately 4.4% of total revenues. Although R&D as a percentage of revenues was below 5% in Q3, this was the result of the timing of studies related to development projects for which the expenditure is expected to be made in Q4. While we expect increased levels of R&D spending in Q4, I would anticipate finishing the year near the low end of our guidance range of 5% to 6% of total revenues. For the 9 months ended September 30, 2011, adjusted operating income was $1.11 billion, an increase of 22% over the same prior-year period, and also mainly driven by higher gross profit. Through 9 months, as a result of our strong revenues and the 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 3- and 9-month period ended September 30, was $447 million and $1.27 billion respectively, and remains forecasted to be between $1.55 billion and $1.75 billion for the full year.

Now let me move on to a couple of our consolidated nonoperating financial metrics. Adjusted interest expense for the third quarter of 2011 was $73 million. We continue to benefit from low, short-term interest rates. As of September 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 debt portfolio which we believe is an optimal ratio of fixed to floating rate borrowings. Our adjusted effective tax rate for the third quarter was 27%. Our range for the full year is between 26% and 28% and we continue to believe that it is possible that we will be at the low end of this range for the full year. We continue to believe that our 2011 full year effective tax rate will be sustainable at the 2011 levels going forward. Third quarter adjusted net income was $238 million or $0.55 per share, a 28% increase from our Q3 2010 adjusted diluted EPS. For the 9 months, adjusted net income was $666 million, and diluted EPS was $1.51 or a 30% increase from our 2010 9-month adjusted diluted EPS results. As Robert mentioned earlier, we are tightening our guidance range for adjusted diluted EPS, for 2011 to $1.98 to $2.02 per share, with a midpoint of $2 per share while at the same time reiterating our long-term growth targets. As Robert also mentioned, we are confident in our position concerning generic Doryx, and believe that this product represents a potential upside opportunity in the current year.

On the heels of our successful share repurchase program, which was completed last quarter, we took additional steps in Q3 towards mitigating the dilutive impact on our EPS of the warrants associated with our convertible debt obligation and maintaining our long-term target of a fully-diluted share count of 440 million shares. Given the decline in our share price during the third quarter, as a result of the dislocation of the capital markets, we executed a cost effective, innovative strategy to deal with our share dilution risk. Specifically, we amended the warrant issued in connection with our cash convertible notes to increase the strike price of substantially all of these warrants from $20 per share to $30 per share. As a result of these amendments, our fully diluted share count at a share price of $30, would now approximate 440 million shares. In consideration for these amendments, we made payments to the warrant holders of approximately $150 million. These payments were made using available cash on hand. Hence, these transactions, similar to the share repurchase program earlier in the year, were completed with no significant impact on our de-leveraging strategy including our goal of achieving a gross debt-to-adjusted-EBITDA ratio of approximately 3:1, which we expect to achieve at or near the end of 2011. In addition to a robust quarter from a cash flow perspective, we were able to complete the amendment of the warrant and still end the quarter with unrestricted cash and marketable securities totaling approximately $543 million.

Turning to our cash flow metrics. Excluding certain items, principally a $60 million payment to Merck KGaA as reimbursement for the tax savings generated through the settlement of indemnified litigation, our operating cash for the quarter was approximately $378 million, the highest in our company's history. Our GAAP cash flow from operations was $283 million for the third quarter and $426 million for the 9 months. On the strength of this powerful quarter, in terms of cash flow generation, we are still forecasting our full-year 2011 operating cash, excluding certain items, to be within our guidance range of $800 million to $900 million. Third quarter and year-to-date capital spending was $57 million and $168 million respectively, and we expect full-year capital expenditures to be at the lower end of 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 third quarter or 9-month period and continue to have no meaningful long-term debt maturities until the $600 million due under our convertible note in the first quarter of 2012, which we currently intend to repay with available liquidity at that time. Earlier this month, we announced our intentions to refinance our existing secured credit facility. The proposed $2.25 billion facility is expected to be comprised of a $1 billion revolving credit facility and a $1.25 billion term loan A. The proceeds from this type of refinancing will be largely used to repay amounts outstanding under our secured credit facility. The terms of our new facility have not yet been finalized, however, we fully anticipate that we will be able to achieve pricing that is favorable compared to that of our existing facility. We expect our commitments to be received later this week and for this transaction to close in the next 2 weeks.

To summarize, our third quarter was even stronger than originally anticipated. We look forward to completing the refinancing of our credit facility in Q4 which, along with our recently completed stock repurchase and warrant amendment transactions has us well positioned as we head into 2012, the start of what should be an even more exciting period for our company.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Marc Goodman with UBS.

Marc Goodman - UBS Investment Bank, Research Division

Robert, I guess the first question is why now? But then just to kind of talk about the business, can you talk -- a couple questions here on Europe. For 2012, if we just exclude the pricing environment, can you give us a flavor of volume launches in Europe? We know that the U.S. is going to be big in '12 versus '11. Can you talk about Europe '12 versus '11 as far as just pure launches? And then, a little more flavor on France. You had mentioned that, that was an area of weakness. Are you holding your market share at 30%? Is it just pricing going on there?

Heather Bresch

So I'll start just quickly on the business and your questions about Europe. So, yes, we look to have a lot of launches next year, but I think what's important to note is we continue to point out. So this year in Europe, we have projected around 350 or so launches, we see that same number next year. I think the big difference year-over-year and what will continue is the amount of those that are internal. So either internal from an FDF perspective or even vertically integrated, which as you know, are huge catalysts for the profitability in our controlling those products. So next year, we'll have even a higher number that are internally developed. So that's why we say the fundamentals haven't changed. Yes, there's obviously macro headwinds going on in Europe, and as I said, we're not going to try to predict when those are over. What we will do is continue to execute what we've laid out there over the years. And we believe, as I've mentioned, we see huge pipeline expansion and growth in 10 out of our 19 European. We'll continue to diversify, we'll continue to grow those businesses. As far as France is concerned, we are holding market share, we actually even gained a little, we're holding up about 31%. But we still see irrational behavior, so it's a combination of the government, the pricing situation, as well as people trying to buy market share. So I believe, as we've always said, we're managing top line, as well as bottom line. I think the one interesting thing, there's been recent reports coming out of France that the government has certainly taken a position that tenders is not the way to go in that market and that utilization is much better for a sustainable, affordable supply of medicine. So I think all of that is in our favor and what we'll be able to capitalize on as Europe turns the corner.

Robert J. Coury

And Marc, I would say that the real question is why not now? And I do think that other Wall Street leaders ought to take note. Quite frankly there are many, many transitions that occur only because people have to do it, and the definition of having to do it sometimes comes because of some fallout, some company condition, some turmoil at the board level, or all the things that we've witnessed over the years. This company has never been -- it's in the best shape it's ever been. It's poised for growth in the future. A lot of the people around this table have helped allow that to happen, and there's no better way to set the right example to know when the right time is. So the real question is, why not now?

Operator

Your next question comes from the line of Frank Pinkerton with SunTrust.

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

First, can give us any more color on Bioniche? Any type of share capture or product outside of the branded ones that have been able to benefit from the dislocation of your competitors? And then one follow up after that, please.

Heather Bresch

So as far as Bioniche, I think we have reported, after the acquisition, that they had about 30 to 40 products and had a pretty good strong pipeline that we continue to accelerate. I called out Ultiva. I think that, that's a great product that we continue to really start seeing, gaining traction on our ability to build that market. And build, quite frankly, some products around that franchise, in the anesthesiology. So we don't call out separate market share by our business units, but I can tell you that Bioniche continues to deliver above and beyond what we had anticipated, and we see quite honestly, because of some of the market conditions, again, our ability to step in as that reliable supplier. So there was a handful of products. As many of you know, a lot of the issues around the drug shortages, and quite honestly it was just how quickly we could ramp up to fill some of those opportunities. And we're continuing to invest in CapEx, so we can continue to more and more step in on the injectable side and fill that.

Frank H. Pinkerton - SunTrust Robinson Humphrey, Inc., Research Division

Great. And then just as a follow-up, Robert could you speak to -- generally, analysts in this space look at the generic business as a base business with future launches on top that drive the growth. As we get further out, say post 2015, is the generic business still going to work that way? And as you shift really more away from day-to-day operations and towards the board, what's the long-term vision for Mylan? Is it going to be the same company 5, 10 years from now? Or what do you think Mylan needs to do to get ahead of the transforming generic industry?

Robert J. Coury

First, let's put on the table, and hopefully take off the table after my answer, this whole notion about this patent cliff leaving us in 2016. I've stated many times, I've never seen a business that has lead time that doesn't have lag time. In other words, the FDA, if you take a look at the docket at the FDA, their queue has never been more robust than it is today. So come 2016, it's not going to be a watershed event. While all of a sudden the FDA is going to open up their coffers and just approve everything they have in the queue. I assure you that the FDA -- it'll take a good 2, 3 years, if there were no other patents coming off in 2016, I believe it'll take 2, 3 years for the FDA to roll out that queue. So I really expect generic growth robustness beyond 2015 and I -- whoever started that I think is a real misnomer and that needed to be taken off the table. Also, I will tell you that I don't believe Mylan -- I think that the strategy that has been deployed, the assets that have been garnered were put in place for both a short, medium and long range plan. And I really believe, honestly, nothing is going to change. All, again, the people around the room here played a very vital role in allowing us to achieve what we've achieved. Again, this is more of setting the right example and rewarding people for the good hard work that they've helped create where we are today and how we're going to drive this going forward. There will be no change. In terms of the opportunities for '15, '16, and beyond, believe me, believe me, we are already and have been incubating many opportunities. And come at our Analyst Day in -- when we do our fourth quarter results, myself, other members of the management team will be present for you and for other investors to kind of talk exactly about this, beyond 2013. And I think at the time would be the appropriate time, and hopefully we'll have a lot more detail to give you at that time.

Operator

Your next question comes from the line of Elliot Wilbur with Needham.

Elliot Wilbur - Needham & Company, LLC, Research Division

First question for Heather. Just going back to some of your earlier commentary on the French generic market. There's pricing pressure in different forms, marketplace pressure from competitors and also price concessions on the part of -- or required by the French government. In looking at some of the austerity measures proposed this year, there was a noticeable inclusion of savings from accelerated generic utilization. Essentially, appear to sort of match the price concessions that the government normally requires. My question is, do you think we're hitting an inflection point? At least in terms of the government book of business, whereby accelerated generic utilization may actually offset and potentially even become a positive relative to price concessions. And then second question for you, Heather, as well, and for Robert. In thinking about the injectable business, Mylan has always been at the forefront of quality in the industry and there's been a real quality void in the injectable space in the last couple of years, and it's created tremendous short-term opportunities. Bioniche obviously gives you a toehold in that business, but sort of given the quality gap and Mylan's history, in terms of being a leader in that regard, do you think that injectables might be a place where you may look to step up your position at a earlier point in time?

Heather Bresch

As far as the French market goes, I do believe that -- as we said, if you take away the macro issues, I believe that what we're hearing and seeing, especially in France recently, was being very bullish on utilization being a huge answer to some of their healthcare costs, and I think that, that's been something we've been out there helping to educate, work with governments and show them that these one-time price cuts is not a sustainable way to deliver what they need to be able to contain healthcare and as well as provide more access. So I certainly am encouraged by their remarks, I'm encouraged that there will be -- that as long as they drive those incentives to do the substitution and utilization, I think we are going to be in the best position of any company out there to seize upon it. So when exactly that happens, again, we said we're not going to predict that, but absolutely see the benefit of there being the volumes to offset these pricing constraints that we see in the market today.

Robert J. Coury

And, Elliot, in terms of quality, I would not limit our insistence for the high quality standards that we demand upon ourselves here at Mylan to just the injectable front. I would say that the opportunity to apply the standards that we put upon ourselves is much broader than that. And I'll tell you, as the FDA continues to get ready with the whole new user fees and the war chest, that Heather has led to way in terms of trying to provide the resources. And as they beef up their staff, I can assure you that the FDA is going to become even more serious about the -- lifting the quality standards and I think, as best as they can on an even keel. And I do think that's going to flush out a lot of different things. And I'm not saying, as large as our company today, that we're going to be unscathed. I think that we're going to, too, as all the facilities that we've inherited and these new standards, we will absolutely have our share. But certainly much, much, much, less than anybody else out there in the industry. And I do agree with your thinking. And yes, let me hit it right off the bat, the injectable area is absolutely one that we're focusing on, but I do believe there are going to be many other opportunities where we can marry up our strong quality standards internally with others and be able to bring that as one of our core competency values towards anything that we look at. And in terms of also -- one metric I think would be good for you guys in terms of -- that I don't think you thought through as you roll out beyond 2013. Right now, we've set for the last few years, in R&D, at about 5% to 6% of our top line revenues. And if you go to 2013 alone and you maintain that same trajectory, you're looking at about $500 million, roughly, in R&D spend. I'll be honest with you, I can't think, for the life of me, how we would spend more than $200 million on R&D on the generic side. So I do think, going out in those further years, you're looking at $300 million of cash flows to fund other things such as brand opportunities, biologic, some of these injectable. And I'll be honest again, there is going to be companies, I'll say, that are going to be the haves and have-nots. Mylan, because of its size and because of its nature, will be a self-funded machine. We will not have as much reliance on others, because of our internal strong cash flow generation, to allow us to invest for the future, and we'll speak more about that at the Investor Analyst Day, in our fourth-quarter results.

Operator

Your next question comes from the line of Shibani Malhotra with RBC Capital.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

Just a couple. The first is in the Dey business, can you talk about your expectations going forward in terms of how sustainable the growth is in this segment? And then was there any stocking this quarter that you expect to reverse going forward? And then I have a follow-up.

Heather Bresch

Sure. As far as Dey goes, look, as I had said in my remarks and as we have been talking about this year, we certainly saw a huge opportunity on 2 fronts. When our label changed to provide -- people that are at risk for anaphylactic shock should be carrying EpiPen, as well as the guidelines that came out in January saying that everybody who is at risk should carry 2 EpiPens. I think that those were both big events that we've started to capitalize on. As I've said, we're back up to 98% market share, but we believe, still, huge opportunity here in the United States. We're only touching about 2 million, 2.5 million people and believe that it's well, well above that, people that are at risk for anaphylactic shock. So the DTC advertising that we did, the educational campaign, what we have going on in schools, we believe will continue to really show nice expansion in that market. We see it already take traction with the first time that we kicked it off this July. So we're going to be, obviously, continuing those efforts, investing even more behind those efforts, and I don't see it stopping. So I look very forward to what Dey and EpiPen, especially, will continue to contribute. And as I've said before, as far as being at risk, I continue to maintain that, I think, it'll be very difficult to have an AB substitutable product against EpiPen. And I believe anything else that's out there as a 505(b)(2), if anything, would do more to help share the voice, and the education, and the awareness around anaphylactic shock. So again, we don't really see any risk to us as far as the 505 route goes. And so, look, I think EpiPen's been phenomenal and we'll continue to see a lot more out of that franchise in the coming months and years.

Shibani Malhotra - RBC Capital Markets, LLC, Research Division

And then very quickly on Lipitor. I know this is not in your the guidance, but you said you might see upside from that product this year. Can you talk about what would need to happen for you to be able to launch generic Lipitor this year? And then how likely that scenario is. And when you expect to find out. Would it be on November 30? Or could we hear about this before then?

Heather Bresch

On Lipitor, I think we've said a lot and have a lot out there on Lipitor. What I would tell you is that we believe that what needs to happen is the FDA needs to make a decision on whether Ranbaxy's application was caught up in the fraudulent activity that led to their AIP. And the FDA's the only one that can make that decision. Obviously, they have not done so yet. And that would lead to either the ability for others to be approved once their -- if their 180 days was taken away. So that's the event. It could happen tomorrow, it could happen November 30. That's really, totally, in the FDA's hand. We hope and believe the FDA is continuing to drill down on that subject matter. It's of utmost importance to the consumers, to this country, to the affordable access to medicine. I think they know the importance around it, and we look forward to them making the right decision, and we'll be ready to seize on the opportunity.

Operator

Your next question comes from the line of Greg Gilbert with Bank of America Merrill Lynch.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

So first of all, can you confirm that generic Lipitor is in your 2012 plan? And can you talk about how you've modeled the level of competition on that molecule over the course of 2012? And then the second bigger-picture question -- again, congrats, Heather. And, Rob, sorry to see you go in terms of these quarterly calls, but we'll ask one more for you. So as you pass the torch to Heather, and recognizing you're still part of the board, how important do you think it is for Mylan to be more balanced between generics and brands over time? I know that's a near-and-dear-to-your-heart theme. I'm talking about beyond Dey's growth here. And then also, is addressing the tax structure a key priority for Mylan over the next 3 to 5 years beyond what you've been able to achieve?

Robert J. Coury

Why don't you do tax, John. And then, Heather, you can jump over and then I'll answer him last.

John Sheehan

First of all, on the Lipitor, Greg, as you know, we have not put out specific guidance with respect to 2012 and we would anticipate doing -- we will do so in conjunction with our Q4 earnings call and Analyst Day in February of next year. And at that time, I think we will detail for you, not only guidance, but also our expectations with respect to what the Lipitor market will be. And I think it'll depend a little bit on what the FDA decides here, as Heather was mentioning a few moments ago. With respect to the tax, I think we have been very proactively addressing our tax situation, our effective tax rate, over the last 18 to 24 months. In 2009, our effective tax rate was above 29%, and we're in the 26%, 27% range now. And so I think we've done a nice job. At the end of the day we are a U.S. domicile company. And therefore, with a very significant portion of our business located in the U.S., that benefits us from an operational perspective and then we're very -- proactively, to minimize our overall tax liability.

Robert J. Coury

Honestly, Greg, I don't know how to say this any other way because maybe some people don't understand what the title Executive Chairman is versus just the Chairman. I really don't see anything changing. Since I've been involved with this company for the last 10 years, I can't even begin to tell you how active, we as a management team, have already been with our Board of Directors. Just go back and take a look at our proxies, go back and take a look at the number of meetings. And just know, that at the board level, we are just as active there, and always have been, as we are as a management team. And our board is involved, intimately involved, in all strategic direction of this company. And again, we don't operate separate from them. I don't see that changing at all. And as Executive Chairman, I try to point out, leading this company in terms of the strategic direction, leading the board, I fully intend not to ever walk away from what I consider, what I do on a daily basis. And that is help the direction and determine where we're going to go, and working alongside with the management team to execute. So on the brand strategy, I can absolutely tell you -- and again, it's not just the brand but the overall strategy for the company has been set. It's well on its course and it will continue. And I will continue to be very active with management in any new direction that we deem to be appropriate at any given time.

Operator

Your next question comes from the line of Ronny Gal with Bernstein.

Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division

A couple of questions. The first one on Dey Pharma. Can you just help us understand a little bit the margin structure of this revenue, the spread that goes up? Obviously you've got a piece you're paying out for Pfizer will continue. But it would be great to know how you see the SG&A moving with revenue. Essentially, do you see a margin expansion here or should we think about this margin as being staying around the same? The second question is around biosimilars. Any idea when we might be able to see the first product from Mylan appearing on the FDA ClinicalTrials.gov?

John Sheehan

I think if I take the margin one at the beginning, Ronny -- as you know, we don't breakout the margins of the Dey business. The EpiPen, in particular, you know is manufactured by a third party, and we've purchased that product. And we're very pleased with the margins that we're earning on that business and on that product. In conjunction with expanding the awareness about anaphylactic shock, and the benefits of the EpiPen, we have been conducting a direct-to-consumer marketing campaign that's been both in television spots as well as other media outlet. And there is certainly an SG&A-related cost associated with that, but you see the benefits of that of the top line and in the growth of the overall business for Dey. And I think if you look at the Dey business, we do breakout the operating results of that business separately, and it is a very nice contributor to Mylan's bottom line.

Heather Bresch

And as far as the clinical test. And I think, as Rob said, we have a lot of opportunities to talk about '13, '14, and beyond, that we're working on right now, and I think we'll get into that at the opportunity to meet with you guys Investor Day with Q4.

Operator

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

Jami Rubin - Goldman Sachs Group Inc., Research Division

If you could just, either Robert or John, just if you could address the new tightened guidance. Obviously you came in several pennies above expectations, but the new tightened guidance does imply that the fourth quarter consensus is high by a few pennies. And, John, you talked about R&D and the tax rate coming in at the low end of the range. Is this mostly persistent weakness in EMEA? It certainly seems like that. And, Heather, you had discussed on previous conference calls that you expected Europe to be stronger in the second half than in the first that because of product launches. Should be assume that those product launches are being overshadowed by persistent pricing pressures? And just my third question, and apologies, it surrounds Doryx. I'm just wondering if the reasons behind the lack, yet, of a full approval -- is that because of the legal landscape or is that because of the regulatory issues given Warner Chilcott's dual-score tablet that was just approved?

Robert J. Coury

Let me go backwards with Doryx. I believe it's absolutely much, much, much more like 90% legal. And with that said, I'm not going to not take the opportunity to say I think the obvious. Jami, I know you're new to our particular sector, but the conduct and actions taken by Warner Chilcott is nothing less than despicable, in my opinion. It's what I believe, it's the epitome of what brand companies try to do. But yet, they're running their business, we're running ours. But I can't help to express that opinion and this is exactly what we fight and have fought for every awakening day that we have, not to allow generic low-cost high-quality pharmaceuticals to be brought into the marketplace. And so I think, from a legal side we're, again, very, very, extremely confident about our position there. And from a regulatory side, as you know, they did the next thing which was file that citizens petition, which is really what I'm making reference to. And so I don't think that, that's going to hold up. I think that the FDA has recently changed their administrative standards. And for anybody to file citizens petition with them, I think 60 or 90 days from a product approval, they quite frankly, do those citizens petitions quite different than the standards they have to apply To citizens petitions that were filed much more in advance. So we are very confident that we'll overcome the preliminary injunction, extremely confident that the FDA will award us our approval, and very hopeful that we're going to be able to launch in this year. In terms of the guidance. Jami, honestly, I got to tell you the fourth quarter to me is, with all due respect, it's a yawn. That to me is yesterday's news. Because when you go in -- and let me just start off by saying, on the guidance part, what I think you might have not focused on. We, in the past, did have Doryx in there. We actually took Doryx out but maintained our $2 midpoint. That should tell you that we see other underlying strength to replace that opportunity and that's why be kept that midpoint at $2 because we feel very strongly we're going to be able to hit it without it. So really, I would look at fourth quarter as actually being stronger, now that we've taken Doryx on and replaced it with other strength we see in the underlying business. But most importantly, as Heather read off the opportunities in 2012, I mean, the first quarter in 2012 alone, and she used the world exceptional, I can only underscore that one. Because of the momentum that we continue to build on our base business each quarter, and then to add those opportunities and the settlements that we have, 2012 is set to be, probably, Mylan's best year in its entire history.

Heather Bresch

And just quickly on your question around France. I guess, what I'd say is, we -- as I continue to stress we're not predicting, we're not going to try to predict. Obviously our guidance range takes everything into consideration that we see for the remainder of this year, and I think as John noted when we get into Investor Day and talk about 2012, we'll obviously get some visibility on our thoughts around France and Europe at that time.

Operator

Your next question comes from the line of Chris Schott with JPMorgan.

Christopher Schott - JP Morgan Chase & Co, Research Division

First question here, how much of the unfavorable price dynamic you're currently seeing in Europe is government impair driven at this point versus generic industry generated price competition? Is it 75/25, 50/50, just any flavor there would will be appreciated. And you've mentioned some of the irrational pricing behavior you're seeing in players trying to gain market share. What's it going to take for these challenges to be resolved? Or should we just assume this is something persists for the foreseeable future, again, on that irrational pricing behavior?

Robert J. Coury

Heather, you can get the percentage and I'll comment on the...

Heather Bresch

Yes. I think that it's, yes, it's all interrelated. So I don't really know how to break apart. There's one payer in these country and so that dynamic married out to how the competitors handle themselves are completely intercorrelated. I don't think I'd do justice trying to separate the 2. And as far as the irrational behavior that I've spoken to in the past, we don't believe that's sustainable. So when does it end?

Robert J. Coury

I'll tell you what I think how's it's going to end. Just let the quarters go by and that -- because, honestly, you can't sell product that you just are losing money on. That cannot last. It's not sustainable. So there can be low-cost cyclical conduct, but again, it's not sustainable and I really believe let the quarters run out, let all the macro issues -- we're no longer going to try to predict exactly or, again, run countries or other people's businesses. What we are going to do is be committed to all of you, our shareholders, and to be able to guide you what we think this global diverse business can generate in earnings growth. That's exactly what we're going to do, and continue to meet or exceed how we guide you. So the only forecast you're going to get, and you'll see in our guidance, because we are -- and we do forecast. Before we put guidance out there, we are looking ahead and we're looking at all these challenges and we'll probably weigh in all these variables, and that all gets incorporated into our guidance. So really any events that you see occur, rather than the Street or be reactionary, just pay attention to management and how we guide with our guidance. That is the underlying principle, and that's why I speak about the fourth quarter when I say, with all due respect, it's a yawn. It's yesterday's news. The only thing about the fourth quarter is if somebody would think that somehow, whatever we produce in the fourth quarter, that, that's somehow a run rate going forward. Well, we all know that's why we're laying out for you 2012, and especially the first quarter going forward, what the real continued run rate is for this company. And it isn’t going to be the fourth quarter this year.

Operator

Your next question comes from the line of Randall Stanicky with Canaccord Genuity.

Randall Stanicky - Canaccord Genuity, Research Division

Just 2 on the brand business that's been talked about, Robert. Are you looking to add to the Dey asset or would it be potential additional verticals? And then, additionally to that, John, is 3x leverage the right way to think about how you want to be from a cap structure perspective? And if that is the case, how much capital does that free you in terms of being able to allocate the deals?

Robert J. Coury

Well, yes. I mean, let me just -- because this is something we discuss all the time. And I got to tell you, one of the biggest goals, for me anyway, was to meet that commitment of 3:1, debt to EBITDA, and we've achieved those, certainly achieve that by the end of this year. And so we've done a monumental thing. It was a transformational transaction and it took a lot to be able to see through that transaction and we did, and again, we're poised for such phenomenal growth. Now with that said, I will tell you that the continued robustness, and the cash flows that we're generating are just -- allow me to feel even more and more comfortable. Now, in terms of capacity, I really see -- and I just want to throw a range out there, but to do a $2 billion, $3 billion, $4 billion transaction that would temporarily -- dependent upon what type of EBITDA we would bring in -- to temporarily lever up, maybe up to $4 billion, but quickly de-lever back down to the $3 billion range, a range where we're comfortable. We like to be in the hybrid credit rating place. We think that's the most optimal place for us to be. I think it is how I would guide you today. And in terms of the brand, I would not limit anything in terms of the brand. Getting these patents out of re-examination and making sure that we have a very strong base to grow from was, to me, the very, very first important thing. That's why this trial coming up with Sunovian is -- I just can't wait till that day comes in March. I've been waiting for 3 years for this. But we need it. It took 2 years for us to get our patents out of the re-examination office just do to the queue that's there because of all the patents under re-issue, let alone the new patents. So when you know you have intellectual property and you know you've got strong asset that are generating strong cash flows, you put those 2 together and you look at what we have in the pipeline and you can't help but foresee now, the realities, and then just like I said, Randall, about -- take a look at our R&D budget and take a look what we guided you. The 5% to 6%, look at 2013. Again, I'm finding it very hard to invest more than $200 million in generic R&D come at the end of 2013. So you are going to see, we're going to be a well-funded machine, self internally generated. We're not going to have a need for external transaction, but you can rest assure that I will be continuing to look.

John Sheehan

Let me just -- just to add on to Robert's point. Number one, the 3 to 1 is a long-term target, and it's one which we feel very comfortable can increase. Any transaction that resulted in the leverage increasing would also have to have a demonstrated ability to bring that leverage back down, because over the long run we want to be at 3 to 1. And just one other -- a couple other number facts, right? We're generating, in excess of $500 million a year of free cash flow, and our EBITDA is growing by $200 million a year. And if you take that $200 million and you just multiply by 3, and before ever thinking about any EBITDA that a transaction would bring with it, I think those are some of the metrics that Robert had in his head when he says that he has all the financial flexibility to do whatever is the right transaction for Mylan.

Robert J. Coury

And again, there's no need. And we are committed to earnings growth. I am not going to be doing those strategic transactions and take away the promise. As we haven't, up until now. We continue to deliver on the earnings growth, it's our commitment, and we're going to be extremely financial-sensitive in anything that we look at going forward. But we do see opportunities are going to continue to pop up because we see them percolating now.

Operator

We have time for one final question. Your final question comes from the line of John Boris with Citi.

John T. Boris - Citigroup Inc, Research Division

First question just has to do, Robert, with business development. If you look at some of your peers, they believe that they need to have a concentration of anywhere between 20% to 30% of their current base of revenues in branded products. You're currently materially below that. How important, at least, is that to you going forward? And the second part of the question is, is M&A or any kind of business development activity needed to meet the $2.75 guidance or is that exclusive of that? And then I just have one follow-up question.

Robert J. Coury

Okay. I mean, I said I think all along, that the $2.75 -- there was no M&A needed to achieve that, other than the business development deals that -- like the Bioniche, like any other therapeutic category that we are looking to slide into our ongoing platform and distribution system. In terms of -- I'm sorry, the first question, in terms of the -- hold on, hold on. Yes.

John Sheehan

I just don't sign up, I guess, to this percentage thing. I think it's a mistake. I think, what I should be asking myself is, do we have enough earnings growth? And are we, as a company, optimized into maximize earnings growth from wherever the assets are? And I don't think -- and right now we see that we have an engine of a continuation of strong earnings growth. And I don't think it should be, to me, talking about percentage of brands. That to me is looking at it backwards. So if I ever felt that we didn't have this trajectory of earnings growth, that continuation of earnings growth, then I would take the next step, okay? What is our shortfall? Look internally, can I get anymore out of what we have internally? If not, and then when I begin to look to the outside, where I end up, ultimately, I don't think that I would want to even set my feet in concrete where that ought to be. An opportunity is an opportunity, but I would say that this company is predominantly driven for earnings growth and a sustainable earnings growth model. And it could be that part of the work that we're doing on the brand side. Anyway, naturally, let's say the percentage of our brand to our generics. It could be that, that percentage could migrate toward a higher percentage on the specialty side. I don't know, I don't want to predict that, but earnings growth is, I think, the number one key for us.

John T. Boris - Citigroup Inc, Research Division

And then one for Heather, in Europe in particular. If I'm a competitor, Heather, and I see that you currently have repatriated, I think, about 50% of your product line over there. If the other 50% is vertically integrated and you're exposed with another 50% that's not vertically integrated, my instincts would be to attack that part that's not been repatriated yet, in that you have less flexibility on pricing. Is that happening? And the second part of that is, what percent have you repatriated it? Any update you can give on that would be appreciated.

Heather Bresch

So I guess what I'd say is, we certainly don't talk about product-by-product and where that product is coming from. So while we've given you the trend and where we are at a macro level, we're certainly not talking about it. So I believe our advantage is knowing what's vertically integrated, what our cost base is, and how can compete on this products. Our competitors certainly don't know that. And as far as where we are, you're right, we've said about 50%, and that was my comment earlier about even the number of launches next year and then the year after that. So while they are holding at around 350, they are continuing to be more internally generated. And we have said, by the end of 2013, we expect to have about 70% of our product in pipeline vertically or horizontally integrated from an FDF or API perspective.

John Sheehan

And with that, we'd like to thank all of our stakeholders and employees for their continued support. And, operator, with that you can close out the call. Thank you.

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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