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Mylan Inc. (NASDAQ:MYL)

F3Q08 Earnings Call

February 27, 2008 5:00 pm ET

Executives

Robert J. Coury - Vice Chairman and Chief Executive Officer

Edward Borkowski - Chief Financial Officer

Heather Bresch - Chief Operating Officer and Chief Integration Officer

Rajiv Malik - Executive Vice President and Head of Global Technical Operations

Kris King – Executive Director of Investor Relations

Analysts

Ken Cacciatore - Cowen and Company

Gregg Gilbert - Merrill Lynch

Frank Pinkerton - Banc of America Securities

Randall Stanicky - Goldman Sachs

Adam Greene – J.P. Morgan

Richard Silver - Lehman Brothers

Corey Davis - Natixis

Robert Jones – UBS

David Buck - Buckingham Research

Andrew Swanson - Citi

Marc Goodman - Credit Suisse

Ronny Gal - Bernstein

(Julia Valenova - Swiss Re?)

Operator

Good day and welcome to today’s Mylan third quarter and nine months ended December 31, 2007 conference call. As a reminder, today’s conference is being recorded. For opening remarks and introductions, I would like to turn the call over to the Executive Director of Investor Relations, Ms. Kris King.

Kris King

Thank you, Tamika. Good afternoon and thank you for joining us today. As Tamika mentioned, I am Kris King, Executive Director of Investor Relations at Mylan. I am joined on today’s call by Robert J. Coury, Mylan’s Vice Chairman and Chief Executive Officer; Edward Borkowski, Chief Financial Officer; Heather Bresch, Chief Operating Officer; and Rajiv Malik, Executive Vice President and Head of Global Technical Operations.

Before we begin, we at Mylan wish to advise you as follows. During today’s call including during the Q&A, we may make forward-looking statements including with regard to our anticipated business levels, our planned activities, and other expectations for future periods.

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 quarter ended September 30, 2007 and in our filings with the SEC, the Securities And Exchange Commission, and we encourage you to refer to those. You can access our Form 10-Q and other filings through the SEC’s website at www.sec.gov.

Earlier this afternoon, Mylan issued a press release which contained financial results for the quarter and nine months ended December 31, 2007. This press release is available on our website at www.mylan.com. Additionally, we are conducting a live webcast of this call, which will be available on our website after the conclusion of today’s call for approximately eight days. This afternoon’s call is being recorded.

Please note 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 express written permission.

With that I’d like to now hand the call over to Robert J. Coury, Mylan’s Vice Chairman and CEO.

Robert J. Coury

Thank you, Kris, and welcome everyone to today’s call. On October 3, Mylan’s management team stood before you and presented the new Mylan, a company with enhanced scale and stability, a truly global reach, vertical and horizontal integration, and a deep and experienced management team. We also presented to you our strategy for becoming world leader in the generics industry.

Since that meeting, our management team and Mylan employees around the world have been single-mindedly focused on the execution of our strategy; and for that, I would like to thank each and every one of our employees around the world and recognize them for their hard work, dedication, and commitment.

We are extremely pleased to report this focus on execution is paying off. We delivered strong results for the three and nine months period ended December 31, which includes for the first time, a full quarter’s contribution from our acquisition of Merck Generics. Edward Borkowski, our CFO, will walk you through these results in more detail.

As you will see, our first quarter as a consolidated company was a strong one, with our core business around the world performing extremely well. We are thrilled at the contribution we are seeing from the Merck Generics businesses, particularly in Europe and Asia-Pacific, as well as from our Mylan legacy business. We are extremely pleased with how the integration is progressing and we believe we are very much on track to achieving our synergy targets.

The progress we made on the integration is a real tribute to Heather Bresch, our Chief Operating Officer and Chief Integration Officer, and the entire integration team who have been working around the clock to ensure that we meet our objectives.

As you might imagine, Heather has been working very closely with Rajiv Malik, our Head of Global Technical Operations. During this call, they will both walk you through the many actions that have been taken to leverage the power of our core generic global business, optimizing a global technical operation and rationalizing our cost base.

Before I turn the call over to Ed, I would like to personally update you on a number of important strategic initiatives we’ve announced today. As we promised you at our Investor Day and subsequently, we conducted a further review of our global portfolio of businesses following the completion of the Merck Generics acquisition, looking at both our core and non-core assets.

As a result of this review, we are pursuing several initiatives that will allow us to deliver on our promises, including leveraging the power of our global generics platform, focusing on the successful execution of our integration, and meeting our commitments to delevering our balance sheet.

First, let me talk about our Nebivolol transaction. We announced today that we have reached an agreement with Forest Laboratories regarding Nebivolol, our FDA approved product for the treatment of hypertension marketed by Forest under the brand name Bystolic.

Under the terms of this agreement, Mylan will receive an upfront one-time cash payment of $370 million while retaining royalties for the product through December 2010. Forest will also immediately reimburse us for our inventory on hand, which will bring a total cash influx of over $400 million.

We are very proud of our role in the development and commercialization of Nebivolol in the United States and believe that today’s agreement with Forest is evidence of the value that we have created and delivered through this opportunity.

I also want to assure you as you saw on today’s announcements by our majority-owned subsidiary, Matrix Laboratories; Matrix announced that its Board has authorized management to consider strategic alternatives for Docpharma, its commercial business in the Benelux countries including a possible sale of that business.

The Matrix Board of Directors has determined that as Matrix expands its role within Mylan’s global footprint, it is in the best interest of Matrix and its shareholders for Matrix to continue to focus on its core API and finished dosage form development, as well as on the continued growth of its anti-retro viral business.

Docpharma is an excellent business which offers a strong platform for the marketing and distribution of generic pharmaceuticals in those Benelux countries.

Finally, we also announced today that we are considering a sale of Dey, our specialty pharmaceutical business, which we acquired as part of the Merck Generics transaction. Allow me to walk you through how we came to this important decision.

As you know, we acquired the Merck Generics business through an auction process and we promised that the Dey business would be a separate focus of our portfolio review given the very different demands of the specialty business compared to a core generics operation.

As I’ve stated on many occasions, we wanted to ensure that we fully comprehend all of the opportunities and challenges at Dey in order that we could provide you with more detail on our specialty strategy by late spring or early summer of this year. We are clearly well ahead of that target date.

As many of you will recall from our Investors Day back in October, we had high expectations for the launch and growth potential of Perforomist, Dey’s FDA approved nebulized treatment for COPD. We anticipated, based on what we knew at that time, that Perforomist would in short order offset the expected decrease in revenues as a result of DuoNeb coming off patent.

However, during our review of Dey, it became clear that the launch of Perforomist, which occurred concurrently with the closing of the Merck Generics acquisition, did not have the right strategic positioning.

While Dey is already in the process of addressing this issue, the delay will result in slower growth over a longer timeframe then we originally anticipated from this product. We believe that with an appropriate strategic focus, Perforomist can and will ultimately deliver the results that we originally expected.

However given this, we do not wanted to detract our focus from our primary objective in acquiring Merck Generics in the first place, and that was achieving the global scale necessary in generics and becoming the world leader in this space.

As you would expect, we are moving quickly to take all the necessary actions to best position our business for future growth and execution in a very successful way. Although we are not in a position to update a revised guidance at this time, we expect that the slower than expected uptick of Perforomist will have approximately a $0.20 to $0.25 impact on Mylan’s diluted earnings per share in 2008, 2009, and 2010.

We look forward to updating guidance in conjunction with our 2008 first quarter earnings announcement.

And with that said, and after careful review of all our assets, I can assure you as I sit here today with a high degree of confidence, notwithstanding the single timing issue associated with the slower uptick of the launch of Perforomist, we do not see any other material issues in front of us.

The results of this initial quarter including Merck Generics gives us great confidence in the potential of our core generics business around the world and in the value of the global platform created through the combination of these three pristine assets: Mylan, Merck Generics, and Matrix.

I very much look forward to answering your questions, and with that, I’ll now turn the call over to Ed Borkowski, our Chief Financial Officer.

Edward J. Borkowski

Thanks, Robert, and good afternoon. Today’s earnings call marks another significant milestone in the history of Mylan as this is the first quarter in which we include the results of our newly acquired Merck Generics entities. Our acquisition was completed on October 2, 2007 and the results of Merck Generics are included in our financial results from that date.

We are extremely pleased with our results for the quarter ended December 31, 2007, which include a strong contribution from our newly acquired entities, particularly in the important markets of France, Germany, and Australia.

For the quarter ended December 31, our adjusted diluted cash earnings per share was $0.11, which exceeded our estimates primarily due to stronger than anticipated revenues and gross margin dollars including those contributed by the new companies; spending near the low end or slightly below our ranges for SG&A and R&D; and slightly lower overall recurring financing expenses due principally to the securing of permanent financing to replace our bridge loan sooner than originally forecasted, as well as slightly lower average interest rates.

As with the case with our acquisition of Matrix in January 2007, the quarter in which an acquisition is completed includes certain non-recurring and non-cash charges related to purchase accounting. The most significant item for the period ended December 31, 2007 was the one time write-off of $1.27 billion of acquired in-process R&D, which is not tax deductible, and is therefore recorded with no tax effect.

In addition, the quarter included $117.7 million of pre-tax non-cash amortization expense related to purchased intangible assets and the inventory step-up associated with our Merck Generics acquisition.

Primarily as a result of these purchase accounting related charges, we reported a GAAP loss per diluted share of $5.04 for the three months ended December 31, 2007 and a GAAP loss per diluted of $4.49 for the nine months then ended. On an adjusted cash basis, diluted EPS was $0.11 and $0.92 for the three and nine months ended December 31 respectively.

Because of our recent acquisitions and other significant items which have occurred in our business, we continue to believe that the evaluation of our ongoing operations and comparisons of current operations with historical and future operations is best done by using adjusted diluted cash EPS, which is a non-GAAP measure.

In the current quarter, adjusted diluted cash EPS excludes the following:

Approximately $1.27 billion of expense related to the write-off of In-Process Research and Development (IPRD) and $117.7 million of amortization as we’ve discussed;

Charges of approximately $62.7 million associated with non-recurring financing related expenses;

And approximately $40.5 million of integration and other non-recurring expenses principally related to the acquisition and integration of Merck Generics, such as professional and consulting fees, retention and other compensation related charges, and expenses associated with the company’s change in its year end, as well as a gain of $1.2 million from favorable settlement of litigation.

In the quarter ended December 31, 2006, adjusted diluted cash EPS excludes the following items:

Approximately $3.3 million of amortization expense;

A net gain of $25 million related to a foreign currency contract related to the Matrix acquisition;

And a net gain of almost $35 million from the favorable settlement of certain litigation.

Adjusted diluted cash EPS is also a measure that we use internally for performance measurement, forecasting, and budgeting purposes. It should be noted that non-GAAP measures such as adjusted diluted cash EPS should be used only as a supplement to, not as substitute for or as a superior measure to measures of financial performance prepared in accordance with GAAP. A reconciliation of adjusted and GAAP measures can be found in our earnings release issued earlier today.

Mylan previously had two reportable segments, the Mylan segment and the Matrix segment. With the acquisition of Merck Generics, Mylan now has three segments, the Generics segment, the Specialty segment, and the Matrix segment.

As has been the case in the past, certain general and administrative and R&D expenses not allocated to the segments, as well as litigation settlements and non-operating income and expenses are reported in corporate and other.

Total revenues for the quarter ended December 31, 2007 increased 188% or $754 million to $1.16 billion from $401.8 million in the same prior year period. Of this increase, $794 million represents third-party sales made by our newly acquired entities.

Of this amount, $598 million is included in our Generics segment, $102 million in our Specialty segment, and $93 million in our Matrix segment. Generics segment revenues are comprised of sales from North America, Europe, the Middle East, and Africa or the EMEA, and Asia-Pacific.

Third-party revenues from North America were $416 million for the three months ended December 31 compared to $402 million for the same prior year period, representing an increase of $14.5 million.

Of this increase, $54 million is the result of the acquisition of Merck Generics. Excluding the impact of the acquisition, total North American revenues decrease by nearly $40 million, primarily due to lower pricing partially offsetting by increased volumes.

Sales during the three months ended December 31, 2006 were bolstered by the launch of new products, primarily Oxybutynin, which contributed revenues of $66 million. New products in the current quarter by comparison contributed $21 million for revenues.

Mylan’s silicone matrix fentanyl patch, which is our AB rated generic alternative to Duragesic’s reservoir patch, continued to contribute significantly to the financial results of our Generics segment, despite the entrance into the market of additional generic competition in August 2007.

However, as expected, the additional competition had an unfavorable impact on pricing and resulted in lower fentanyl sales as compared to the quarter ended December 31, 2006.

Third party revenues of $373 million from EMEA and $171 million from Asia-Pacific were all the result of the acquisition of Merck Generics. In the EMEA, the majority our revenues were derived from the three largest markets in which we operate in that region: France, the UK, and Germany. Our revenues in Asia-Pacific were generated by our operations in Australia, Japan, and New Zealand.

The Specialty segment consisted of Dey, an entity acquired as part of the Merck Generics acquisition that focuses on development, manufacturing, and marketing of specialty pharmaceuticals in the respiratory and severe allergy markets.

The Matrix segment reported total revenues of $107 million, of which $93 million represented third-party sales.

Consolidated gross profit for the three months ended December 31 was $356 million and gross margins were 31%. The decrease in gross margins is due primarily to the purchase accounting adjustments recorded during the quarter.

Excluding such items, gross margins were 41% compared to 56% for the three months ended December 31, 2006. Our gross margin percentage for the three months ended December 31, 2007 was also unfavorably impacted by approximately 2 percentage points as a result of several non-recurring items.

Our consolidated loss from operations for the three months ended December 31, 2007 was $1.27 billion. In addition to the purchase accounting adjustments which affected gross profit, this loss from operations for the quarter included a $1.27 billion one-time, non-cash charge to write off acquired in-process R&D.

Excluding these amounts, earnings from operations would have been $119 million, a decrease of $65 million from the prior year.

Research and development expense for the three months ended December 31, 2007 was $81 million compared to $23 million in the same prior year period and includes approximately $54 million related to the newly acquired entities.

Excluding these amounts, R&D expense increased by $4 million as a result of increased clinical studies and higher R&D head count related to a higher level of ANDA submission activity.

Our acquisition of Merck Generics and Matrix added $170 million of incremental SG&A to the current period. Excluding this amount, SG&A expense increased by $53 million to $105 million compared to $53 million in the comparable prior year period.

The majority of this increase is a result of costs, such as professional and consulting fees, associated with the integration of Merck Generics, as well as higher payroll and related costs principally attributable to the buildup of additional corporate infrastructure as a direct result of the Merck Generics acquisition.

Other expense net was $44 million for the three months ended December 31 compared to $32 million in the same prior year period. The most significant item in the current period was a $57 million charge related to the early repayment of certain debt and expensing certain financing fees, partially offset by other income attributable to interest and dividends.

For the three months ended December 31, 2006, other income consisted of a net gain of $25 million related to a foreign currency forward contract with respect to the Matrix acquisition as well as interest and dividend income.

In October, in conjunction with the acquisition of Merck Generics, we refinanced our existing debt as part of our strategy to create a new global integrated capital structure. On October 2, we entered into a senior credit agreement pursuant to which we borrowed $500 million in Tranche A term loans, $2 billion in Tranche B term loans, and €1.1 billion under a euro term loan.

The senior credit agreement also contains a $750 million revolving facility, under which we borrowed $325 million. Also on October 2, we borrowed $2.2 billion in interim bridge financing.

The proceeds from these borrowings were used to pay a portion of the Merck Generics acquisition price, to refinance our existing credit facilities, and to purchase our outstanding senior notes.

Included as part of our senior note tender was a premium to holders of the senior notes the amount of $31 million. In addition to this premium, certain deferred financing fees were written off, accounting for the remainder of the $57 million.

In November, we completed the sale of 2.14 million shares of our 6.5% mandatory convertible preferred stock at $1,000 per share and 55.4 million shares of our common stock at $14 per share.

These offerings generated net proceeds after underwriting discounts and expenses of approximately $2.8 billion, which we used to repay the outstanding bridge loan.

On December 20 of 2007, we amended our senior credit agreement. As a result of this amendment, our U.S. dollar denominated debt was increased $2.9 billion and our euro denominated debt was decreased by €875 million. This amendment did not result in any additional borrowings.

Our interest expense for the current quarter totaled $133 million compared to $10.5 million for the three months ended December 31, 2006.

For the nine months ended December 31, 2007, our GAAP loss per share was $4.49 compared to adjusted diluted cash EPS of $0.92. As in the quarter, our adjusted diluted cash EPS for the nine months excluded:

The $1.27 billion IPR&D charge;

The $56 million related to the integration and other non-recurring expenses;

A charge of $62.7 million related to the financing expenses;

A $2 million gain from a favorable litigation settlement;

As well as a net gain of $85 million related to foreign currency contract related to the Merck Generics acquisition.

GAAP diluted EPS for the nine months ended December 31, 2006 was $1.34 compared to adjusted diluted cash EPS of $1.18 which excludes the following items: approximately $10 million of amortization expense; a net gain of $17.5 million related to the foreign currency contract related to the Matrix acquisition; and a net gain of $46 million from the favorable settlement of litigation.

For the nine months ended December 31, total revenues were $2.18 billion compared to $1.12 billion during the comparable nine month period of the prior year. As the quarter ended December 31, $54 million of sales in North America as well as all the sales of EMEA, Asia-Pacific and the Specialty segment were the result of the acquisition of Merck Generics.

Excluding the impact of the acquisition, total revenues for North America for the nine months ended December 31 increased by $89 million. This increase is a result of new product and favorable volume, partially offset by unfavorable pricing.

Products launched subsequent to December 31, 2006 contributed net revenues of $156 million, the majority of which was Amlodipine, which we launched in March 2007.

For the nine months ended December 31, 2007, the Matrix segment reported total revenues of $294 million, of which $264 million represented third-party sales. As we began consolidating the results of Matrix on January 8, all of this revenue is incremental to our prior year results.

Gross profit for the nine months ended December 31 was $874 million and gross margins were 40%. Excluding the impact of purchase accounting, gross margins were 47% compared to 54% for the nine months ended December 31 of 2006.

The loss from operations for the nine months ended December 31, 2007 was $988 million. Excluding purchase accounting and the write-up of IPR&D, earnings from operations would have been $429.7 million for the nine month period, a decrease of $5.7 million from the prior year.

R&D expense for the nine months ended December 31 excluding that incurred by the newly acquired entities was $75 million compared to $67 million in the same prior year period, an increase of $8 million, primarily a result of increased clinical studies and higher R&D head count related to a higher level of ANDA submission activity.

SG&A expense, also excluding amounts contributed by recently acquired entities, increased by $95 million to $247.9 million compared to $152 million in the comparable prior year.

The majority of this increase is the result of costs such as professional and consulting fees associated with the integration of Merck Generics, as well as higher payroll and related costs principally attributable to the buildup of additional corporate infrastructure as a direct result of the Merck Generics acquisition.

Interest expense for the nine months ended December 31, 2007 totaled $179 million compared to $31 million for the prior year. Other income net was $86.6 million for the nine months ended December 31 compared to income of $40 million in the same prior year.

The most significant items in the current period are net foreign exchange gains consisting mainly of $85 million on a foreign exchange contract related to the acquisition of Merck and a $57 million charge related to the early repayment of certain debt and expensing certain financing fees with the remainder of the other income attributable to interest and dividends.

Our effective tax rate for the nine months was a negative 5.6%, primarily as a result of the non-deductibility for tax purposes of the $1.27 billion IPR&D charge related to our Merck Generics acquisition.

That concludes my remarks and I’ll turn the call over to our Chief Operating Officer and Integration Officer, Heather Bresch. Thank you.

Heather Bresch

Thanks, Ed, and good afternoon everyone. As you heard from Ed’s comments, our fourth quarter performance is a good indicator of the significant growth opportunity from the Merck Generics acquisition, and demonstrates that we are delivering on our goals for this transformative transaction.

In our comments today, Rajiv and I will walk you through our progress on the integration effort to date, which I believe will give you great confidence in our ability to combine these businesses and successfully leverage the breadth and scale we have created in the new Mylan.

As you may remember when we first announced the Merck Generics transaction, we estimated that we would realize approximately $250 million in synergies. We’ve revised this number upward to $300 million by the end of 2010, based on what we saw during integration planning and provided you with details as to how we were going to achieve these synergies at our Investor Day in October.

Today, I am pleased to say that we are on track to meet or exceed this $300 million synergy target. We expect to realize the first tranche of $100 million in synergies in 2008 as a result of the actions we announced today to rationalize and optimize our R&D and manufacturing operations, as well as other actions that have already been initiated.

More importantly, we expect that 75% of our total synergy target will be secured from these same initiatives. I also want to note that we have in place the overall integration plans to address the full $300 million.

As I have explained before, we were able to realize the first $100 million of synergies by the end of 2008 due to the fact that there are no regulatory impediments with regard to rationalizing our R&D.

The second tranche of $200 million will be realized by the end of 2010 due to the regulatory nature of product transfers and alternate sourcing of APIs and finished dosage forms. I’d also like to remind you that our synergy numbers refer to EBIT and exclude one-time cost.

In addition to our $300 million in synergies by 2010, we continue to see additional opportunities from portfolio expansion beyond the 2010 timeframe. When we spoke to you in October, we anticipated minimal contribution from portfolio expansion before 2010 due to the approval process in individual countries.

However, we certainly saw this as a growth opportunity for 2010 and beyond. While this process is still expected to take time, we are continuing to find opportunities and it’s possible that we will be able to realize some of these benefits from portfolio expansion sooner.

Before I turn the call over to Rajiv, I would like to personally thank our employees around the world for their dedication and focus. The fact that we have delivered such strong performance in this first quarter as a consolidated company while, also bringing together the Mylan, Merck Generics, and Matrix businesses is a testament to the hard work of our employees across the organization.

Now, Rajiv will provide you with some detail on our integration efforts particularly as they relate to our global technical operations.

Rajiv Malik

Thank you very much, Heather, and good afternoon everyone. Let me start with a few words about myself and my team. I am Rajiv Malik, Head of Global Technical Operations and acting CEO of Matrix.

As you saw in the press release from earlier today, I’m in the process of transitioning from my Matrix responsibilities and will be relocating to the U.S. to be in close proximity with the Mylan senior leadership.

The journey over the last year started with integrating Mylan and Matrix, which has exceeded our expectations on all fronts. A few months ago, I was very excited to take on the challenge of integrating the newly acquired assets of Merck Generics.

During this process, we have assimilated a strong core team of manufacturing and R&D professionals from the three different organizations of Mylan, Merck, and Matrix as well as leading companies in the industry across the world.

The excellent progress made so far, which I am about to share with you, is a reflection of the strength and cohesiveness of this team. We are already realizing significant value from the new Mylan and from the integration.

Let me now provide you with some details on what we have done and demonstrate how these actions are delivering value to our business and ultimately our shareholders. Today, we announced a plan to rationalize and optimize our global manufacturing and research and development platforms.

These measures will help us leverage our increased scale by consolidating activities at a few global sites. As outlined in today’s press release, we will discontinue three manufacturing operations, three R&D sites, and scale down one additional R&D operation.

Now let me walk you through the specific steps of these finalized plans. First, we will discontinue manufacturing and R&D at Genpharm in Canada. Some functions, such as packaging, commercial testing and release, regulatory, and commercial sales and marketing will continue to remain in Canada.

We will also discontinue manufacturing of non-high potency products at Mylan’s Puerto Rico location. High potency manufacturing operations will be expanded in Puerto Rico, creating a center of excellence for high potency manufacturing at this facility.

In addition, we will discontinue R&D activities at Gerard Laboratories in Ireland. Scale up and stability activities for R&D at Gerard will remain in operation but will be migrated into manufacturing over time. We will also discontinue our R&D activities in Spain currently contracted to a third party. And finally, we will also scale down R&D activities at Generics U.K.

We have also completed a review of all products purchased externally by Merck Generics. We have identified all opportunities to repatriate products, production of Active Pharmaceutical Ingredients (NYSEMKT:API), leveraging Matrix API capabilities, and finished dosages either internally or to an extended network of low cost external partners.

We have detailed implementation plans to manage the site closure and to transfer 100 products to other sites to realize our synergy targets. The first wave of 25 product transfers is already underway.

Our manufacturing and R&D site closures will impact about 720 full-time employees over the three-year period of 2008, 2009, and 2010. Of these, we expect that about 200 employees will be displaced in 2008.

We have developed the appropriate severance package as well as transition support plans for the impacted employees at the relevant sites. We are communicating these decisions simultaneously to our employees and customers at this time.

As part of our synergy review, we have already taken actions to rationalize our R&D portfolio. Specifically, we have finalized plans to discontinue 61 overlapping projects. These measures are focused on eliminating redundant projects between the portfolios of Mylan and Merck Generics.

The rationalization has no negative impact on our overall pipeline. Instead, it allows us to leverage our R&D spend globally and address many countries simultaneously.

These measures represent all restructuring actions we outlined for our R&D and manufacturing footprint on Investor Day. Following completion of these initiatives underway, the new Mylan will have 11 finished dosage manufacturing facilities, 8 R&D sites, and 11 API manufacturing facilities.

Our teams have conducted a thorough review of our worldwide product portfolio and have identified opportunities to take products across multiple geographies. We are moving swiftly and by the end of this quarter, we expect to file three significant products in Europe. This will further help us leverage our intellectual property and maximize returns on our global R&D spend.

As Heather mentioned earlier, the ongoing implementation of actions already underway will account for approximately 75% of $300 million in net synergies we expect to achieve by 2010. As a result, based on what we know today, we are very confident that we’ll be able to meet or exceed our total synergy targets by the end of 2010.

I would now like to comment briefly on the Matrix integration. It has been one year since we closed Matrix transaction and our strategic initiatives together remain well ahead of schedule. Matrix provides a long term competitive advantage to new Mylan because of its favorable cost structure efficiencies and scale. This is true not only in manufacturing but also in R&D.

Let me highlight what we have already accomplished with Matrix.

For the first twelve months since Matrix integration, Mylan is expected to meet its stated goal of 60 U.S. ANDA submissions excluding Merck, almost tripling the number over the previous year. We are also on track to deliver 140 R&D submissions in year 2008 as promised on Investor Day.

Let me also give you an update on where we stand with respect to vertically integrating Mylan’s portfolio with Matrix APIs. Over the last twelve months, we have submitted 26 applications to FDA for API backward integration and we have already received five approvals in record time. Over 50% of our currently pending ANDAs are now vertically integrated with Matrix.

We are currently working on 73 projects using Matrix APIs that we expect to file submissions to the FDA in the near future. We now look forward to extend this initiative to the Merck Generics portfolio, further expanding our submissions and leveraging our vertical integration platform.

Over 35% of our projected launches over the next four years are expected to be vertically integrated with Matrix APIs. I certainly expect to continue to see ongoing performance enhancements in our integration and synergy realization efforts and look forward to keep you posted about our progress on execution of these initiatives.

Now let me turn the call back to Heather who will provide you with more details on the progress of integration.

Heather Bresch

Thank you, Rajiv. Our Matrix integration has been and we believe will continue to be tremendously successful and the details Rajiv just outlined should illustrate our ability to capture value from bringing these companies together.

One of the metrics that we have used to measure performance has been product launches. Mylan met its stated target of 25 launches for calendar year 2007 and based on our tremendously enhanced R&D pipeline, our commercial launches will accelerate accordingly.

While I don’t want to go through a complete laundry list of everything we’ve completed during integration so far, I do want to give you a good sense of our progress to date on some other initiatives outside of technical operations.

First, I’d like to discuss our leadership structure as this is clearly something vital to the success of this integration and ultimately the future success of Mylan. Since the close of the Merck Generics acquisition, Mylan has operated under one unified senior leadership team. This team has been fully operational for several months and it truly feels as if we’ve been working together for years.

One of the keys to building the new Mylan has been bolstering our bench strength. Since October 2007, we have filled almost 20 critical positions with experienced individuals. We have been fortunate to attract talent from a number of leading pharmaceutical and biotech companies.

It is also worth noting that throughout this entire process, we have not lost any key senior team members. We think this speaks volumes about the opportunities individuals see at the new Mylan.

We’ve recently brought on two key executives who I would like to highlight. Today, Matrix announced that Jagdish Dore’ will join as CEO. He replaces Rajiv, who was acting as Matrix CEO and who is moving to the United States in his current role as Head of Global Technical Operations.

Jagdish has enjoyed a distinguished carrier. He is a highly sought after industry veteran and an outstanding hire for us. He joins us from Sandoz where he was the Managing Director and India country head.

At Sandoz, Jagdish was responsible for 1,800 employees and all operations in India covering global development, manufacturing, and sales. We are absolutely thrilled that he’ll be leading Matrix.

In addition, Patrick Vink recently joined us as Senior Vice President in the new position of Global Head of Biologics. Patrick is a well known and respected expert in biologics. Prior to joining us, he held key roles at Sandoz, Biogen, and Sanofi.

It’s worth noting that while at Sandoz, he led the successful development and registration of the first biogeneric in the U.S. and Europe, a landmark event for the generic pharmaceutical industry. We have long promised to deliver biologics strategy and Patrick’s appointment will further ensure that we take the appropriate actions to develop a global generic biologics business for Mylan.

Throughout this integration, we have also put great emphasis on local and global communication to our worldwide staff to ensure that employees around the world are excited and motivated by the opportunities ahead.

We also made every effort to ensure that the integration has not negatively impacted our day-to-day operations as evidenced by our strong performance in our first quarter as a consolidated company.

Now let me move on to organizational structure, an area where we’ve also made great progress. As you may recall on day one, we announced that we would be immediately operating as one global organization across manufacturing and R&D, as well as a number of core global functions.

In structuring this organization, we wanted to ensure that we fully leverage our global scale while also ensuring our commercial operations remain close to local markets in responsive to local needs.

This has required us to find the right balance between regional and functional operations and local and global responsibilities. I am proud to say we have rolled out this new organization quickly and seamlessly in a way that meets all of these criteria.

To ensure optimal product portfolio and sourcing, we’ve also developed a new integrated global portfolio selection process coordinating commercial, R&D, and business development. This process will help us meet market demand in a timely way while allowing us to leverage Mylan’s scale to put in place the best sourcing options.

Another example of where new Mylan is leveraging its global scale is on our new global purchasing team. This team is pursuing a variety of initiatives to reduce our indirect procurement cost. We expect to realize a bottom line impact of approximately $10 million from this process this year.

Now let me move to the progress related to separation from Merck KGaA. As you know, Mylan entered into a transitional services agreement with Merck KGaA for 12 months, which applies to operations in 21 countries.

We are following a detailed country-by-country plan which covers all aspects of separation from IT to real estate to payroll. We have already successfully separated two entities including Japan, and we are on schedule to complete the migration of all other entities to the Mylan infrastructure by September 2008.

As part of our purchase agreement with Merck, we have the option to take control of their generic businesses in a number of smaller markets in Central and Eastern Europe, Asia and Latin America.

While we continue to review all of these other opportunities, we have triggered our option with respect to Merck’s generics business in Central and Eastern Europe. These are very high growth regions and we are very excited about their potential part of our global footprint.

Let me move on to re-branding. Our brand license agreement with Merck KGaA allows for the use of the Merck name for a period of two years, impacting 19 entities. We are very excited about the opportunity to launch the Mylan brand in these regions and have plans in place which we hope will enable us to complete this process ahead of this two-year period.

In fact, we have already completed the corporate name change in several countries, the first of which was Japan. We are in the process of launching a marketing campaign to introduce the new Mylan Seiyaku and we’ll be utilizing this opportunity as well as other future launches to introduce the high quality product, global scale, and commercial footprint of the new Mylan.

We’re particularly excited about having our first launch in Japan, given the recent legislation introduced which encourages the use of generics and looking forward to leveraging the launch to maximize this market opportunity.

As we move forward with the re-branding, we want to ensure we retain the strong brand equity that has made both Mylan and the Merck Generics companies successful. We believe that the success of our integration effort will align our ability to execute flawlessly against our plan. And let me assure you we are doing just that.

Currently, we are executing about 60 integration work streams in parallel to achieve our synergy and integration goals. In order to track these initiatives both against critical milestone dates and against synergy targets, we’ve instituted a robust and comprehensive road-mapping process.

I trust that this update gives you the same confidence we have that we’re effectively bringing these companies together and that we are fully aligned and working as one to achieve our goal.

I think our performance so far shows that we are integrating our companies effectively without disruption to our business. We look forward to providing you future updates on the integration as well as the opportunities for growth throughout the entire organization.

Now let me turn the call back over to Robert.

Robert J. Coury

Thank you, Heather and team. Before I turn the call over to questions, let me just do a quick summary on a couple takeaways. One, nothing has changed − nothing. Two, our strategy is not only sound but on track, and we are extremely pleased with this acquisition.

We are extremely pleased to have completed the initial post-closing review and we look forward to narrowing our primary focus on successfully executing on our core generics business.

The decisions as I promised you that I would make are going to be quick and swift. I promised as I know many of you shareholders have invested in our past track record of meeting or exceeding guidance.

We take guidance very seriously here at Mylan. We have now brought in our fellow team members and management around the world. I believe now they emphatically understand the importance of our ability to roll up numbers and to be able to deliver visibility and transparency on what this business potential can produce.

I would like to bring a practical aspect to all of you and I would like to remind you that we have approached this acquisition in a very, very methodical way and we broke it down. There are three segments you need to remember.

One, in an auction process, prior to winning the bid, we were almost next to zero in terms of what we could see in the asset as we went after this global generics platform. And when you have such an aggressive auction process and the more you press, the more others would take it as is, so please keep that in mind.

Once you win that bid, there is a second segment between signing and closing. In that segment, you are still very limited in what you can see − we call it deep dive − based on FTC and other regulatory agency requirements.

For example, when we’ve taken a peek from the time of our initial award of the assets to our very successful Investor Day, we increased synergies because in that initial peek, we saw additional opportunities.

Now that we have closed the transaction, the walls are down and we are now able to get into every single contract that Merck Generics business has had. We were prevented from looking at those contracts due to FTC and other regulatory issues between signing and closing.

There are about 1,200 to 1,400 of these contracts that exist. A lot of the synergies that we expected to get, we estimated the improvements that we could yield from the existing outsourcing that Merck Generics business prior to our acquisition has yielded.

And today, we are extremely confident not only to meet and not only do we feel that we are ahead of schedule, but potentially even exceed. Once again, our ability to yield the value and the synergies are bringing these organizations together.

No, I am not ready to deliver you that upside but I assure you I see the upside. I must give Rajiv Malik personal credit because his ability and world class experience, has been able to pull together the global technical operations with such speed and accuracy. That is the other component that has given us the robustness that we see in our ability to meet and now even potentially exceed our synergies. We believe that we are well on our way.

With that, I would like to now turn it over to questions, operator.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Ken Cacciatore - Cowen and Company.

Ken Cacciatore - Cowen and Company

A question on the performance on the Dey business itself; I just wanted to confirm, Robert, is that $0.20 to $0.25 per year or is that cumulative over the three-year period?

I also wanted to know whether the consideration of whatever you get in the divestiture in terms of debt paydown – I’m going to assume it’s going to be used to debt paydown – does that offset that figure in which you just gave us?

And then just one last point in this: you indicated that you’re not ready to update guidance but does this necessarily mean that we will have a change in guidance? Is that $0.20 to $0.25 you’ve laid out what performance impact will be, does it mean with the netting of synergies that we consider it a lowering of the target synergies? Thanks.

Robert Coury

As far as the first question is concerned, the $0.20 to $0.25 is each year, not cumulative. And secondly, we fully intend on meeting the obligation of paying down debt as quickly as practically while meeting our business objectives that we set out, but there will be no more strategic acquisitions. We are done.

We are extremely excited as you could hear. We think there is so much internal opportunity with just bringing these assets together and executing flawlessly that we believe that all of the growth that we promised you is right here at our fingertips and now it’s just a matter of ascertaining that growth with solid execution.

And as far as the guidance is concerned, I tried my best and meet my lawyer’s requirements by conveying to you that outside of this one issue, and it’s not even the Dey business, it’s the product launch, a single product launch. I can sit here today and tell you and you know the detail that we get into. We do not see any other material issue in front of us.

We are extremely pleased with the assets. Yes, we deal with issues every day but they’re not material enough that we can’t balance them and offset them.

But as far as the guidance that we’re going to come forth with in May, we do have a very rigorous process. It’s a very consistent process and I do not want to alter that process because over the last five years, that process has treated us and all of you very, very well.

So I know it’s a little slow for some people but you know what, we are much larger than even we were before and I am extremely confident that you’ll all be pleased in what we have to say in May.

Operator

We will take our next question from Gregg Gilbert - Merrill Lynch.

Gregg Gilbert - Merrill Lynch

First, Robert, can you give us a rough guesstimate for the timeline for the Dey and Docpharma processes?

And secondly for Ed, a follow-up on the prior question; in the $0.20 to $0.25, I just want to make it very clear you have not made any assumptions on proceeds from Dey and the delevering that could result in that $0.20 to $0.25. Am I right? Thanks.

Robert Coury

First of all the timing, we are going to allow the bankers to go through the normal course. As you know, I don’t operate with a gun to my head and certainly I don’t bluff, but I expect to get full and fair value for these assets as quickly as practically possible.

Once you make a business decision in a strategic direction, then our style has been to execute and execute quickly and efficiently and I fully expect that’s what’s going to happen here, but within reason.

That’s why I think the balancing of bringing another $400 million plus in strengthens our position and I fully expect to leverage all the assets in that way so that I can have the best execution for our shareholders as possible. And I would say the exact same thing with Docpharma.

The only overlapping countries that we had, Gregg, just to remind you, was the Benelux countries and in all of the platform that we’ve inherited with Merck Generics, that was the only overlapping.

And we feel very strongly given that predominantly with our expanded commercial operations at Mylan that it did not make sense from a Matrix point of view to be able to compete from that perspective and we think we made the right decision there as well.

And as far as the question to Ed, not to jump in front of him, obviously Gregg, for all the right reasons, we’re not going to try to gauge or target what we think the valuation is overall for the Dey business because we don’t want to disadvantage us in the sale process.

But what I will tell you and that’s why we gave you the $0.20 to $0.25, what I will tell you is that the proceeds like most proceeds that we monetize will be used predominantly to pay down debt.

Operator

We’ll take our next question from Frank Pinkerton - Banc of America Securities.

Frank Pinkerton - Banc of America Securities

First, can you give us cash flow from operations in the quarter? I missed that. And then secondly, the pro forma gross margin for the fourth quarter was about 41%. The existing guidance out there is for somewhere around 44.5% to 46.5%. Can you just give us color on how you’re going to bridge those two gross margin numbers as we go through 2008? Thank you.

Edward Borkowski

Yes, Frank, I think on the gross margin there were some non-recurring items in the fourth quarter that were included in that 41% that added back two points at least to that, pushing that up to 43%. So there is that piece of it that we would anticipate.

I think when we come forth in May, we’ll give you a complete update on margins as well considering all the announcements we’ve made today. And as to the cash flows from operations, frankly, we will be filing that later this week when we file our 10-K.

Frank Pinkerton - Banc of America Securities

And that’s Friday?

Edward Borkowski

That will be Friday.

Operator

We’ll take our next question from Randall Stanicky - Goldman Sachs.

Randall Stanicky - Goldman Sachs

Two questions; first, Heather, can you just confirm the spending for some of the synergies in Q4? They were a little bit higher. Can we just confirm that the view to spending to achieve the synergies over the next three years hasn’t changed?

And then secondly, Ed, on Nebivolol, the initial $75 million payment that you had been amortizing over the life of the product, how does that get treated from an accounting perspective? Does that get pulled forward or does it go away? Thank you.

Heather Bresch

I can go first on the synergy question. The $300 million is still our $300 million target for the end of 2010. And as I said $100 million because of no impediment on regulatory issues and the $200 million because of the regulatory timeframe on product transfers and alternate sourcing.

But what we do see is potential further opportunities perhaps happening a little bit sooner on the portfolio expansion. So those are things as we continue to go down this process just as we changed from $250 to $300 million, certainly at some appropriate time, but at this time we are still at $300 million, but do have potential of other opportunities.

Robert Coury

Randall, let me just follow up. Your question on the one-time cost in order to get the synergies that we promised has not changed. The total amount has not changed. What I will tell you in that one-time cost, Randall, in the three years, we do see the monies moving around in terms of we might for example make a decision to accelerate some IT functions which would bring some of that initial cost, that one-time cost to get the synergies forward a little bit but we don’t see anything being added.

So the answer to your question, it has not changed in terms of the one-time cost to get there.

Edward Borkowski

I think on the $75 million and frankly the $25 million we received as well, those are non-cash amortization items which are non-cash. We’re still looking at the exact accounting on that relative to that the agreement still extends over three years here. We’ll update you in May.

Operator

We’ll take our next question from Adam Greene – J.P. Morgan.

Adam Greene – J.P. Morgan

Thanks, two questions. First, I was curious what impact if any you expect to see from the court’s decision today to disallow the AOK tender process in Germany. Is there any meaningful opportunity for you there?

And second for Ed, should we expect any benefit from the lower LIBOR rates which we’ve seen come down significantly over the last couple of months?

Robert Coury

Let me answer the first question. I think we’ve been living by the AOK tender rates all along. I think that that court decision only affirmed I think what we’ve all had to accept to live by. I think there was an attempt to stop it, but from our perspective we looked forward that that was something we were going to have live with.

Edward Borkowski

Certainly on the interest rates, we should receive and are receiving benefit from the lower rates. Just to remind, I think we had said previously that our all-in capital structure, all debt was approximately 8%. Currently with the change in the capital structure and the lower rates, we are estimating approximately 6.5%.

You have to remember though we did issue additional mandatory convert than we originally had anticipated so there are higher dividends there as well. But essentially that’s what we see at least currently now in our capital structure.

Operator

We’ll take our next question from Richard Silver - Lehman Brothers.

Richard Silver - Lehman Brothers

Just two questions; one is I appreciate the comments about senior management positions and essentially no change since the acquisition. Maybe Robert, you can talk about the compensation issue and something that you commented on in October and any more specifics on compensation of the senior people and retention.

The second question is on Dey’s profitability. Can you give us some sense of the profitability now that DuoNeb has been genericized and how you see that going forward?

Robert Coury

I would look at Dey right now as flat from a profitability point of view and slightly positive. That’s what I’d look at Dey. And as far as your compensation question is concerned, do you have something else you want to that?

Edward Borkowski

Basically we haven’t necessarily broken all that out, but that’s a fair assessment.

Robert Coury

It is what it is. As far as the compensation question is concerned, Rich, believe it or not, we just completed the first year. While obviously, senior management at Mylan was the first one to go to pay to performance; we started three years ago building metrics, the Compensation Committee working with an outside firm has set metrics for senior management.

There was only a handful originally in the pay for performance. We have since expanded it and this year was the first year in Mylan legacy that we actually had a broad based pay for performance with metrics set last year at the beginning of the year and some of the key metrics which you’ll see in the compensation discussion and analysis in our proxy.

But the number of ANDAs, there has been a lot of pressure in terms of our ability. We went from 20 to 60 even without Merck. We were looking for very key metrics that are going to drive this business as well as product launches and what have you.

So, we at Mylan legacy are already under the pay for performance. Merck, believe it or not, had a long term incentive plan with its senior executives that is similar. It wasn’t a stock equity type of plan but it was a more of a cash long-term incentive plan rolling forward.

What we decided to do because of the complexity of integrating these two long term incentive plans is to allow each company for a period of 12 months to stand on their own pay for performance metrics and to give us time from an integration point of view and to allow an appropriate single system and to bring as many of our leaders around the world who need to drive their businesses for shareholder value aligned with Mylan’s senior management team and with our equity.

So, we are well underway with the work done in that area.

Operator

We’ll go next to Corey Davis - Natixis.

Corey Davis - Natixis

First one is of the 20% or so royalties Forest is still going to pay you beyond 2010, what percentage of those do you keep versus any that have to go back to J&J to pay for the manufacturing?

Robert Coury

First of all, we have never announced any percentage of royalties coming to Mylan in terms of an exact percentage. People have been estimating all over the place. And in our agreement, our royalties will be net.

Forest will be responsible for now paying J&J. J&J’s royalty, if you recall, is a royalty through the acquisition of their API. So now that Forest will be purchasing their cost of goods directly, they in essence will be paying J&J their royalty.

Operator

We’ll go next to Robert Jones - UBS.

Robert Jones – UBS

I just had two questions. As we look at R&D and some of the guidance you have laid out previously, I know 2008 was 7 to 8% and 2009 was 5 to 6%. Can you help us understand a little bit what percentage of R&D was coming from the Dey business?

And then the second question is just looking at SG&A. As we go forward, is this quarter a good quarter for us to look at as far as a starting point to which we would start to see synergies come against that SG&A level? Thanks.

Heather Bresch

Obviously the majority of synergies coming in 2008 are to the R&D and rationalization point, which we said would hit right at the end of 2008. Accordingly, the initiatives from the SG&A perspective are all coming in towards the end of that year two. For example, I gave the indirect procurement. So, as these initiatives are all underway as we speak, the bolus of that activity at the end of the year.

Edward Borkowski

And just to give you a high level on the Dey R&D in the overall in terms of percentage, there are a lot of mitigating and compensating balances that are mitigating one another, when you look at Dey in and Dey out.

For example, if there’s a sale in Dey, you would assume some accretion because of the R&D spend in the early years. But as performance would uptick, then you would expect the uptick to offset the R&D savings that we would have otherwise have invested into that particular business.

So, I would like you to look at it overall as more of a neutral type of situation when it comes to the R&D. That’s the best I can do for you right now.

Operator

We’ll take our next question from David Buck - Buckingham Research.

David Buck - Buckingham Research

First for Ed, can you talk a little bit about gross margin at least by legacy Mylan and also Merck Generics and maybe Dey Labs, as well as if we can get a sense of what the parts were to combine to the whole? And also maybe any impact on gross margins that you are expecting from currency moves we’ve seen in the last couple of months?

And then for Robert, can you talk about your appetite for launching at risk and how that changed as you’ve learned more about your own portfolio in the U.S. and combined with Merck Generics? Thanks.

Edward Borkowski

The effect of currency in the fourth quarter was not material. In fact it was less than a penny effect on us.

Robert Coury

But we are still hedged, right?

Edward Borkowski

We have actively looked at our operations around the world and through both some internal and external hedging, we feel we’re appropriately hedged in terms of both our asset risk and around the world. I think we feel very comfortable in terms of our hedging strategy relative to that.

I think on gross margins, we are not breaking out the various legacy segments. We’ll be reporting gross margins. In my comments, I think I went through each of the segments in terms of the profitability relative to gross margins and you’ll see more detail obviously when we file our K, at least by the segments that we reported by Generics, Specialty, and the Matrix segment.

Robert Coury

As far as the launch at risk, I’ve got to tell you I don’t see anything changing and I think that in the past, at Mylan legacy we were extremely methodical in approaching launches at risk. I don’t believe that one should necessarily look at how much money they have on their balance sheet or how much capital they could afford to risk. I think this is a very serious and rigorous process that our company needs to go through as a whole.

I think first and foremost, let’s please not forget that you must have a strong case. And without a strong basis for your case in the first place, you probably shouldn’t be in that position.

So from there, there are a voluminous amount of variables when we are ready, when we get regulatory clearance that we have to evaluate. But I can tell you I may have a different appetite in different regions, let’s just say because there’s a different set of circumstances within a region and the intellectual property laws that apply to those areas.

But I would say as a company overall, we will maintain that same rigorous, very thorough, methodical process before this company risks shareholders’ assets.

Operator

We’ll go next to Andrew Swanson - Citi.

Andrew Swanson - Citi

It looked like the Merck European business was particularly strong in the quarter. Should we think about that as a run rate for 2008 or were there any one-time items or stocking that went into that number? And then secondly, what should we think about for an appropriate diluted shares outstanding number for 2008? Thanks.

Robert Coury

First let me respond on the Merck. I think what you’re seeing is very accurate. I would tell you that they had another record month, even in January, but I am very reluctant to give you any more than what we need to give you because I’ve got to start putting things, forgive me, back in management’s pocket and balance the act a little bit, but I am glad you mentioned that.

The EMEA business is doing quite well, and Asia-Pacific is doing well. It’s hitting on all numbers. Even North America is doing well. We had one small issue that we are dealing with that’s an issue up in the Canada region with a distributor, but we are working our way through that.

But the Generics business overall, I’ve got to tell you, we are extremely robust about it. And I will tell you that the growth that we said early on is the exact same growth I see coming in 2010 and beyond because we are really excited about the portfolio expansion.

We think it has got great possibilities to happen sooner rather than later. But we are going to do the best we can in terms of our guidance come May and I fully expect that we will update you with any changes in guidance along the way as we see opportunities arise.

Edward Borkowski

And just as a note, there are 304 million shares outstanding. That doesn’t include the dilution from what would happen on the mandatory convert. As I have explained to many of you, you’ve got to do the calculation for diluted EPS on the if-converted method. But right now it’s 304 million shares and it looks like that’s what it would be for this year; and in future years, it looks like it would switch to the if-converted method and there is another I think 139 million shares that would come into our share count.

Operator

We’ll go next to Marc Goodman - Credit Suisse.

Marc Goodman - Credit Suisse

Can you help quantify the sales for the Central and Eastern European business that you are going to be bringing in and when would that start to kick in? Just give us on an annualized basis we’re going to be adding this many sales and it kicks in when. And then also on the Docpharma, if you can give us a flavor for how much that’s going to be, how much sales are going away on an annual basis?

Robert Coury

I’m going to need to hear the second question again but as far as the first question is concerned it’s relatively a small business right now. I prefer not to give numbers since we anticipate closing on that by the end of March and hopefully in our May conference call, we’ll be able to tell you.

But what I can tell you is that that business basically if you recall our option to exercise and bring those Central and Eastern Europe countries, which by the way I will tell you, we believe that region in Europe is going to be one of the greatest growing regions in terms of percentage of growth and we are really excited to build that region out.

You have some of the more mature markets, Northern and younger markets in Southern Europe. But Central and Eastern Europe I’ve got to tell you is a real opportunity.

But based on our agreement if you recall, to bring those countries on, all we have to pay is the agreed upon administrative expense to actually take those companies and rip them away from the mother company and take on those administrative.

And we really see that not more than maybe a 2 or €3 million cost and we think that what we’re bringing in right now that this deal right away it will either be neutral to accretive; and if not accretive day one, certainly accretive very, very shortly thereafter.

That one was an easy one because Didier, our President of EMEA, basically he built those regions by himself, so he knows them. He hand inputted every single one of those heads of those states and so this is just a natural for us.

Marc Goodman - Credit Suisse

The other question was on Docpharma, how much will be divesting? And one other question is if you could just go through your Paragraph IVs, you haven’t talked about those yet; update us on how many you have outstanding and what are the new exciting ones?

Edward Borkowski

I would say on Docpharma, it is not necessarily material. We’ve never broken it out before and it is just not material to our total results.

Heather Bresch

I don’t believe this quarter we have anything that’s new that’s from undisclosed to disclosed. As you know, we had the couple of settlements that we had announced, Levetiracetam and Paxil, which we consider to be great opportunities for us. Again, we also have the first-to-file Depakote ER on the 500 milligram that we’re currently in litigation on. So that one is the nearest term potential opportunity from the first-to-file perspective.

Operator

We’ll go next to Ronny Gal - Bernstein.

Ronny Gal - Bernstein

If you can just share with us the D&A for the quarter? Regarding Docpharma and Dey, if you can give us an idea about their contribution to EBITDA for this quarter? And last, Ed, where do we stand right now in terms of running rate for interest payments before the reduction of debt using the cash that is coming in?

Robert Coury

As far as Docpharma and Dey for the last quarter, the most recently completed quarter, remember that Dey still had DuoNeb in that last quarter and so I would not look at Docpharma and Dey as major contributors in this quarter and quarters going forward at this time. Ed, do you want talk about the interest payments?

Edward Borkowski

I think I mentioned them in my comments in terms of what they were for the quarter. I think in terms of going forward, I had mentioned earlier that we’re estimating at least excluding our $600 million convert out there, the average interest rate is approximately 6.5%. Ronny, I’m not sure; we can maybe follow-up later if you want, but that’s approximately where we are right now.

Operator

We will take our last question from (Julia Valenova - Swiss Re?).

Julia Valenova - Swiss Re

Can you please explain how did you get to the loss of $0.20 to $0.25 per share for Perforomist? What were your assumptions for the contribution? And secondly what is the basis for Dey business if you sell it for the tax purposes?

Robert Coury

Let me get the first question, you’re going have to repeat the second. Basically when you launch a product, you do a forecast and so you basically have a curve where you have this uptick. What we see is we see the same curve uptick but pushed out to the right.

So, what we’re looking at is estimating that $0.20 to $0.25 per year is what we see being pushed out or that would affect our numbers in 2008, 2009, and 2010. And of course, none of this is adding back any proceeds from the sale. So, I want to make that point clear. But what was your second question?

Julia Valenova - Swiss Re

The second question was what was your basis on Dey, to calculate the tax base?

Edward Borkowski

I think we haven’t talked about that in terms of what our basis is in that asset or any of our assets frankly. I think that will become evident as we go forward, but we will clarify all that in short order.

Operator

And at this time I will turn the conference back over to our speakers for any additional or closing comments.

Robert J. Coury

Just to say thank you and we waited some time again. We’re extremely pleased that we were able to complete our initial post-closing review so quickly. And again, we don’t see anything else material right now that’s in front of us. We’re extremely anxious to be back home and to be able to run and execute on these businesses and deliver the growth as promised and we do appreciate all the confidence all of you shareholders have put in us and we won’t let you down. Thank you.

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Source: Mylan Inc. F3Q08 (Qtr End 12/31/07) Earnings Call Transcript
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