perrigo company (prgo) earnings report: q3 2015 conference ... · perrigo company (prgo) earnings...
TRANSCRIPT
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
©2014TheStreet,Inc.Al l R ightsReserved Page1of26
PerrigoCompany(PRGO)EarningsReport:Q32015ConferenceCallTranscriptThefollowingPerrigoCompanyconferencecalltookplaceonNovember16,2015,03:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
ArtShannon;PerrigoCompanyPLC;VPofIRJoePapa;PerrigoCompanyPLC;Chairman&CEOJudyBrown;PerrigoCompanyPLC;EVP&CFO
OtherPart icipants
MarcGoodman;UBS;AnalystRandallStanicky;RBCCapitalMarkets;AnalystLouiseChen;GuggenheimSecuritiesLLC;AnalystElliotWilbur;RaymondJames;AnalystUnidentifiedParticipant;Stifel;AnalystGreggGilbert;DeutscheBank;AnalystJasonGerberry;LeerinkPartners;AnalystDavidSteinberg;JefferiesLLC;AnalystTimChiang;BTIG;AnalystSumantKulkarni;BofAMerrillLynch;AnalystLindaBoltonWeiser;B.Riley&Co.;AnalystArielHerman;GoldmanSachs;AnalystDouglasTsao;BarclaysCapital;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Atthistime,IwouldliketowelcomeeveryonetothePerrigocalendar2015third-quarterearningsresultsconferencecall.
(OperatorInstructions)
Thankyou.Mr.ArtShannon,VPofInvestorRelations,youmaybeginyourconference.
ArtShannon (VPofIR):
Thankyou.WelcometoPerrigo'sthird-quarterearningscall.
Inlightofallthenews,andtogiveanadditionaltimeforQ&A,Iwouldliketonotethatthiscallwillbeextendedto90minutes.
Acopyoftheearningsreleaseandourreleaseannouncinganumberofactionstoaccelerateshareholdervalue,whichweissuedearlierthismorning,areavailableonourwebsiteatperrigo.com.Alsoonthewebsiteisaslidepresentationforthiscall.
BeforeweproceedIwouldliketoremindeveryonethatduringtheprocessofthiscallManagementwill
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
©2014TheStreet,Inc.Al l R ightsReserved Page2of26
makecertainforward-lookingstatements.PleaserefertotheimportantinformationforinvestorsandshareholdersandSafeHarborlanguageregardingthesestatementsinourpressreleasesissuedearlierthismorning.
Inaddition,thispresentationcontainsnon-GAAPmeasures.ThereconciliationofthosemeasurestothemostcomparableGAAPmeasuresisincludedattheendoftheslidepresentation,acopyofwhichisavailableonourwebsiteatperrigo.com.
Thiscommunicationdoesnotconstituteanoffertobuyorasolicitationofanoffertosellanysecurities.InresponsetotheexchangeoffercommencedbyMylan,Perrigohasfiledasolicitationrecommendationstatementonschedule14D-9withtheSecuritiesandExchangeCommission.
Securityholdersareurgedtoreadthissolicitationrecommendationstatementandotherrelevantmaterialsifandwhentheybecomeavailable,becausetheywillcontainimportantinformation.ThesolicitationrecommendationstatementandotherSECfilingsmadebyPerrigomaybeobtainedwhenavailablewithoutchargeattheSEC'swebsiteatSEC.govandattheinvestorrelationssectionsofthePerrigowebsiteatperrigoinvestorroom.com.AndnowI'dliketoturnthecallovertoPerrigo'sChairmanandCEOJoePapa.
JoePapa(Chairman&CEO):
Thankyou,Art,andwelcomeeveryonetotoday'scall.JoiningmetodayisJudyBrown,Perrigo'sExecutiveVicePresidentandChiefFinancialOfficer.Weareheretodaytotellyouwhyweareexcited,veryexcitedaboutPerrigo'sfutureinthenearterm,themediumterm,andthelongterm.
Manyofyouhavebeenaskingaboutour2016guidanceforquiteatime.Asyouarewellaware,weareanIrishcompanyunderthejurisdictionoftheIrishtakeoverlawandanyprofitforecastwemakemustbeexpertized.
Andnowwith2016onthehorizon,I'mexcitedtoprovideyouwiththatguidanceandexplainthecomponentsofvalueunderscoredbyonceagainstrongquarterlyearningsduetoPerrigo'steams'relentlessfocusinthepursuitofexcellence.Thisallleadsmetotoday'sagenda.
FirstIwillprovideafewoverallcomments,nextJudywillgothroughtheadditionaldetailsonthequarter,thenIwillwalkthroughtheactionsthatwearetakingtooptimizeourplatformtocreateenhancedvalueforourshareholdersandournew2016earningsguidance.WewillalsocontrastMylan'ssubstandardofferwithPerrigo'sexcellentexcitingfuture.
FinallyyouhaveanopportunityforQ&A.Beforewediveintotheagenda,however,IwanttostartbythankingPerrigoemployeesfortheirdiligenceandfocus.
Ourdedicatedemployeeshavedeliveredonourbusinessgoalsonceagain,achievingadjustednetincomegrowthof38%.Evenwithallthenoiseoverthepastsixmonths,ourunrivaledteamdeliveredonourBasePlusPlusPlusstrategy.
IamtrulygratefulfortheexcellentworkofourteamandIsaythankyoutotheteam.Nowlet'sgototheresultstherecentlyconcludedquarter.Youcanseethatthiswasagreatquarter,highlightedbyrecordthird-quarternetsalesofmorethan$1.3billion.
Turningtoslide5,onaconstantcurrencybasisoverthelastyearthisrepresents44%growthinconsolidatednetsales,organicconsolidatednetsalesgrowthof10%,consumerhealthcaresegmentnetsalesgrowthwas8%,andRxsegmentgrewbyanimpressive34%.Thisquarter'sperformanceclearlyspeakstoourbusinessmodel'sabilitytodeliverstrongorganicgrowth.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
©2014TheStreet,Inc.Al l R ightsReserved Page3of26
Evenmoreimportant,wegrewourtoplineinanincreasinglyprofitablewaywhileinvestinginourfuture.Adjustedgrossprofitmarginexpanded460basispointstoathird-quarterrecordfromacombinationofourconsumerhealthcaresteams'leadingmarketpositionandoursupplychainsteams'continuinghighqualityefficientoperations.
Wealsoinvested13%moreinresearchanddevelopmentversuslastyear,furtherenablingourorganicgrowthprofileforthefuture.Intotaladjustedoperatingincomegrew45%versuslastyear,whichishighlightedbyanearly600basispointadjustedoperatingmarginexpansioninconsumerhealthcare.
Thisquarterprovidesyetagainevidenceofouruniquecatch/paybusinessmodel,thestrengthofourglobalplatform,andtheunrivaledpositionofourconsumerhealthcarebusiness.Judywillnowwalkyouthroughthequarter.
JudyBrown (EVP&CFO):
Thanks,Joe.Goodmorning,everyone.Yetagainouruniquebusinessmodeldeliveredanotherexcitingrecordthirdquarter.
Onaconstantcurrencybasiswegenerateddouble-digitorganictoplinegrowth.Ithinkit'scriticallyimportanttoremindyou,again,thatnearlyallofourrevenuesareinsulatedfromthecurrentpricingdramayouseeplayingoutinthepharmaceuticalindustrytoday.
Yetagainourworld-classteamandhighlyefficientoperationsdeliveredexpandingmargins.Yetagaintheteamdeliveredonourbottom-lineguidance,growingadjustednetincomeanimpressive38%.
Yetagainwebelievethatwewillbeontracktodeliveronfull-yearrecordadjustedearningspershareasstatedinApril.Nowlet'sdiverightintotheresultsforthebusinesssegments,beginningwithareviewofourresultsinconsumerhealthcareonslide7.
TheCHCteampostedagreatquarter,asnetsalesof$675millionweremorethan5%higheryearoveryear,or8%onaconstantcurrencybasis,drivenbystrongnewproductlaunchesand7%growthinUSOTC,doublethegrowthofUSstorebrandtotalOTCaccordingtoIRIMULOdata.
ContributionsfromstorebrandversionsofPrilosecandMucinex600milligramERpropelledtheOTCperformance,whiletheimpressivehighsingle-digitnetsalesgrowthwithintheinfantnutritioncategorywasdrivenbystrongconsumerdemandforstorebrandversionsofeasilydigestibleformulas.Whilenetsaleswithintheanimalhealthcategoryexperiencedsomeheadwindsandwereloweryearoveryear,solidseasonaldemandsforthehigher-marginfleaandtickproductsintheportfoliooffsetanyimpacttooperatingmarginswithinthecategoryinthequarter.
NetsaleswithintheVMScategoryweremorethan5%higheryearoveryear,drivenbynewproductlaunches.Thecategory'ssolidgrowthoverthelastfewquarterspositionsitwelltocontinuegrowingandthrivingunderdifferentownership.
CHCdeliveredanall-timerecordadjustedgrossprofitmargininthequarterof36.2%.Thisisanincreaseof440basispointsoverlastyearduetoproductmixandhigheryear-over-yearproductionefficienciesandvolumesinconjunctionwithfavorablecommoditiespricing.Adjustedoperatingmarginbenefitedfromloweroperatingexpensesyearoveryear.
Onslide8youcanseethatnetsalesinourbrandedconsumerhealthcaresegmentwere$302million,asthetop20brandsgrew6%yearoveryear.Additionally,weclosedtheacquisitionsofNaturvalandtheGSKproductportfolio,whichcontributedanadditional$13millioninnetsalesduringthequarter.Thedistributionbusinesswithinthissegmentwasdownsequentiallyandcomparedtotheprioryeardueprimarilytotimingofinventorysell-throughatourwholesalepartnersaswellassomechanneldynamics
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
©2014TheStreet,Inc.Al l R ightsReserved Page4of26
associatedwiththeMylansituation.
Certaincontractsinthisbusinesscontainedchangeofcontrolprovisions.Giventhisfact,marketconcentrationbycountry,andtimingofsellthroughatourpartners,thedistributionbusinessexperiencedsignificantlylowervolumeswhichareexpectedtocontinueuntiltheMylansituationisbehindus.
Turningtoslide9.YoucanseethecontinuedstrengthofourRxbusiness,whichposted34%netsalesgrowthdrivenbyanincreaseinexistingproductsandstrongnewproductlaunches.AdjustedmarginswereunchangedduetocontinuedinvestmentinR&Dandinourspecialtypharmasalesforces.
Turningtoslide10.Specialtysciencenetsaleswere$85millioninthequarterandwereessentiallyflatonaconstantcurrencybasis,astherewere14shippingweeksofproductlastyearversus13intheUSinthethirdquarterthisyear.Also,asmanyofyousawyesterdayBiogenannouncedtheresultsofitsphaseIIIclinicaltrialevaluatingTysabriforuseinpatientswithsecondaryprogressivemultiplesclerosis,reportingthatthetrialdidnotachieveitsprimaryandsecondaryendpoint.Aswe'vealwaysindicated,wehavenevermodeledanycontributionfromSPMSintoourcurrentorfutureplans.
Turningtoslide11.WeareconfirmingouradjustedEPSguidancearoundthesamemidpointwehavehadoutstandingsinceApril,andnarrowingtherangetobetween$7.65and$7.85pershare.Consistentwithourstrongperformanceyeartodate,weareraisingouradjustedoperatingmarginguidance100basispointsfrom27%to28%.
Asyoucanseeonthisslide,ourrevenueguidanceisbeingupdatedtoreflectthedynamicsinbrandedconsumerhealthcareIhavejustreviewed.Pleasenotethisguidanceexcludestheimpactofanyoftheactionsoutlinedinourpressreleaseissuedthismorning,whichdetailsactionsthatwearetakingtoaccelerateshareholdervalueintothefuture.Furthermorethisguidanceexcludesanyimpactfromthe$2billionsharerepurchaseprogramalsoannouncedtoday.
Joe?
JoePapa(Chairman&CEO):
Thankyou,Judy.Asyouknow,wehaveawell-definedstrategytodelivertoplinegrowth
Our2016revenueguidance,whichyoucanseeonslidenumber13,exemplifiesourconfidenceinourabilitytodeliverrealresults,turningthatstrategyintotangiblegrowth.Ourfundamentalgrowthdriversfortheneartermpositioneachofoursegmentstoachievetheirthree-yearCAGRexpectationspublishedintheFebruary2014analystday.
Andnow,includingourbrandnewconsumerhealthcaresegment,wehave5%to10%forconsumerfacingbusinessand8%to12%forourRxbusiness.Thesegrowthratesareinclusiveofourpreviouslyannounced$1billionofnetnewproductsalesfrom2015to2017.
Todayweareannouncingthesevenactionsthatwillbuildonthatstrategy,leveragethepowerofourglobalplatform,andacceleratevaluecreationforshareholders.Whatwearedoingisamplifyingtheprofitandcashflowprofileofthebusinesswhichwillallowustoaccelerateprofitgrowthin2016andbeyond.
Foreverydollarofrevenuewearegoingtoachievemoreprofitability.Ourcontinuedorganicandinorganicgrowthwilldriveevenstrongerprofitaccretion.Butletmebeclear,theseactionsarereadilyachievable.
Theyarethenaturalprogressionofourglobalexpansionandongoingfocusonoperationalefficiency,
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
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quality,innovation,andshareholdervalue.Ouractionsinvolvedfourmaincomponents.
Numberone,consolidationofourglobalsupplychaininIreland.Numbertwo,Organizationalenhancements.Threeforusisstrategicportfoliorefinement,andfinallyasharerepurchaseplan.
WhileI'lldiscussalloftheseinmoredetailonthefollowingslides,I'dliketoquicklyaddressthe$2billionsharerepurchaseplanweannouncedthismorning.Thisincludes$500millionwhichweplantocompletebytheendof2015,andanother$1.5billionwhichweintendtousetorepurchasesharesoverthesubsequent24to36months.
WewillfundtheserepurchasesfromtheCompany'savailableliquidity.ThesharerepurchaseplanwillbeginaftertheexpirationoftheMylantenderoffer.
This$500millionsharerepurchasewillbeexecutedinquarterfourandisexpectedtoadd$0.15adjustedearningspersharein2016.Tobeclear,thispacketisnotreflectedintheCompany'scurrent2015or2016guidance.
TheadoptionofthisrepurchaseplandoesnotmeantherewillbeanychangestotheM&AcomponentofourBasePlusPlusPlusstrategy.WewillcontinuetopursuefinanciallyandstrategicallycompellingM&AopportunitiesthatmeetourROI'sdeepthreshold.
ThesharerepurchaseplanisreflectiveofourbeliefintheCompanyanditsprospectsforgrowth.Simplyput,Perrigoisagreatbusinessandcontinuestobeagreatinvestment.
SincewereceivedMylan'sunsolicitedoffer,wehaveconsideredabroadrangeofoptions.InfilingafullreviewwebelievethatPerrigorepresentsthebestinvestmentforPerrigoshareholdersatthistime.Thegreenboxesatthebottomoftheslideprovidedagoodsnapshotofthevalueweareoffering.
Weexpecttheseactionstoachievebenefitsof$175milliononatotalrunratebasis.Combinedwithoursharerepurchaseplan,wefeelthisisremarkablycompellingvalueproposition.
We'llgetintothenumberslater,butrestassuredthisisvaluewellinexcessofanythingMylancanoffertous.I'dliketotalkaboutoursupplychainactionsinthebroadercontextoftheglobalplatformthatwebuilt.
Inlate2013weacquiredElanPharmaceuticals.TheElantransactionprovidedPerrigowithagatewaytoglobalexpansion.
Earlierthisyear,webuiltuptheplatformwiththeacquisitionofOmega,whichhasenabledustoprovidequalityhealthcareproductstohundredsofmillionsmoreconsumersglobally.Wearecontinuingtobuildonthisplatform,realizingevengreaterbenefitsthanweinitiallyexpected.
Asanexample,ourrecentlypurchasedportfolioofleadingOTCbrandsfromGSKandtheadultnutritionproducts,weadd15moreproductstothebackofourEuropeantrucksdeliveringtoallofourcustomers.Todayisthenextstepinoptimizingourglobalpresence.
Wearecapitalizingonthepotentialofthecolorfulglobalplatformwebuiltandcreatingoperationalstructurethatwillaccelerateourearningspotential.Tothatend,wearetakingimmediatestepstoconsolidateouroperations,supplychain,andprocurementmanagementactivitiestooneglobalcenterofexcellenceinIreland.
Byeliminatingredundancyandenhancingpurchasingpowerwewillfurthermaximizevalue.Onafullrunratebasistheseactsareexpectedtodriveoperationalandtaxbenefits,reducingoperatingcostsbyanestimated$105million.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
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Next,wearegoingtoincreaseourorganizationalefficiency.I'mveryexcitedtoannouncethatJohnHendrickson,formallyExecutiveVicePresidentofGlobalOperatingandSupplyChain,willbepromotedtotheroleofPresidenteffectiveimmediately.
With26yearsofexperienceatPerrigo,hehasadeepunderstandingofourbusiness,provenmanagementskills,andastrongcompetitivedrivetoensurePerrigocontinuestodeliveratthehighestlevelinourindustryintermsofquality,efficiency,andinnovation.TheshiftwillalsoallowmetopersonallyfocusevengreaterattentiononPerrigo'soverallstrategyandparticularlyourM&Aopportunities.
We'vealsoannouncedinitiativestoacceleratetherealizationofactionsonthesharedservicesmodel.Wearealreadyaleanorganization,butwearealwaysseekingcontinuousimprovement.ItisinourDNA.
Wearethustakingstepstoright-sizetheorganization,eliminateredundantadministrativefunctions,andgenerallystreamlineourorganizationalstructure.Operator,thereisacallerthatisnotmuted.Ifyoucouldpleasemutethatcall,please.
Operator :
Okay.
JoePapa(Chairman&CEO):
Thankyou.Thatsaid,theseeffortstoslimdowndon'tmeanwewillloseourmuscle.Theseplanswillinnowaycompromiseourrelentlessfocusonqualityandinnovation.Qualityandinnovationarepillarsofourbusiness.
Forexample,ourinvestmentinR&Disslatedtoincreasebyapproximately20%nextyear.Inallweanticipatetheseorganizationalenhancementswillyieldcostsavingsof$35millionatafullrunrate.
Thethirdactionweannouncedtodayiscomprisedofinitiativestostrategicallyenhanceourportfolio.Inkeepingwithourcontinuousattemptstoimproveourefficiency,wewillbeevaluatingaspectsofourbusinessanddivestingcertainassetsthatdonotmeetourROICthreshold.
Forexample,whileourUSVMSbusinessdeliversexcellentproductstoourlong-standingcustomers,wethinkthatitwillthrivemorefullyundernewownership.Whilewehaverecentlyimprovedthisbusiness,it'sdivestiturewillenhanceourrevenueandoperatingmargins,earnings,andROIC.
Weestimatethattheseactionstoenhanceourportfoliowilldeliveroperationalefficienciesatacostsavingsof$35millionatafullrunrate.Asyoucanseehereonslide17,thecumulativeheadcountimpactofthisstrategicportfolioenhancementandorganizationalenhancementinitiativesIoutlinedontheprecedingslide,willresultinatotalworkforcereductionof800positions.
Iwouldnotethattwo-thirdsofthesereductionsrelatetoassetsplannedfordivestiture.Ineedtonotethatenhancementrunsbothways.
WewillcontinueexecutingonourstrategytomakeaccretiveM&Atransactions;wewillcontinuetopursuefinancialandstrategicallycompellingtransactionsaspartofourstrategytogrowshareholdervalue.Asweannouncedthismorning,weanticipatethesecombinedactionswilldeliverincrementalbenefitsof$175milliononcethefullrunrateisachieved.Includingthesesavings,Perrigoexpectstodelivera2016adjustedEPSof$9.30,anincreaseof20%overourcalendar2015EPSguidancemidpointof$7.75pershare.
Iwouldremindyouthatbothofthesenumbersareexpertized.Additionally,wejust[faced]thecalendar
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
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year2015portionofoursharebuybackplan,encompassing$500million,willaddapproximately$0.15toour2016EPSnumber.
Whenyouatthe$0.38ofvaluefromouroptimizationactionsannouncedtoday,thefullproformarunratewithtoday'sactionswouldbringusto$9.83ofadjustedEPS.Inshort,wearedeliveringsignificantgrowthoverlastyearandhavethemomentumandstrategynecessarytocontinuetodrivethatgrowthoverboththeshortandlong-term.
Theseareclearandreadilyachievableactionsthatweareannouncingtoday.Manyarealreadybeingcompleted,andwebelievethattheyaregoingtocreatetremendousshareholdervalue.
Whilewehavebeenhardatworkonreturningthesegreatresultsandactionplansyouhaveseentoday,MylancontinuesitsattemptstodistortthefactsanddeceiveshareholdersinordertostealourCompany.TheydidsoagainintheirmostrecentpresentationonOctober13.
Fromthebeginningofthisprocesswe'vebeencommittedtoprovidingtransparentinformationtoshareholders.Judyisgoingtowalkthroughafewofthesefacts.
JudyBrown (EVP&CFO):
OnOctober13youheardfromtheMylanManagementteamandBoardofDirectors.Theyoutlinedfourkeyclaimswhichhavelittlebasisinreality.
Onslide22youcanseeMylan'sdistortionofthefactsversustherealitywearegoingtoremindyouoftoday.One,thisofferrepresentsadiscounttooursuperior,multiple,andasub-substandardpremium.
Two,thisisnotanaccretivetransaction.InfactitisdilutivetoMylanEPSuntilatleastyearfour.Three,thereisvirtuallynoalignmentbetweenourbusinessesthatwouldserveasthebasisforgeneratingatleast$800millioninsynergies.
Four,MylanwouldultimatelydestroyvaluethatbelongstoPerrigoshareholdersacrosseverymetric,yieldingalowertradingmultipleandalowergrowthrate.I'mgoingtotakeafewminutestotalkyouthrougheachoftheseelementsnowingreaterdetail.
Aswe'venotedbefore,Mylanclaimstheyareofferingarobustmultiple.Butyoucanseeonslide23thatprevioustransactionsinvolvingcomparablecompaniesintheindustryhaveprovidedsignificantpremiumvaluationstoshareholders.
ButMylandoesn'tjustfallshort[ofthecomps],itimpliesnopremiumtoPerrigo'sdurabletradingmultiple,amultiplethatPerrigohasearnedthroughitssuperiortrackrecord.IntheirpresentationMylanattemptstodiscreditPerrigo'svaluation.
Thereality,asyoucanseeonslide24,isthatwetradelikeourconsumerpeersandhavedonesoconsistentlyovertime.WhenyoucomparethistoMylananditspeersthedifferenceisstark.
OurconsumerfacingbusinessputsusatasustainablecompetitiveadvantagetoMylananditsgenericspeers,andpositionsuswell,asIsaidearlier,toconformtorecentpharmaceuticalindustryvolatility.
Slide25furtherunderscoresthegapinvaluationofourtwocompanies,whichhasbeenaconsistentoneovertime.RecentlyMylanhasfallenwellbelowitspeers,downover25%sincetheychasedTempoaway,achangethatcan'tjustbeexplainedawaybymarketvolatilityandnoise.Wearen'ttheonlyoneswhohavenoticedthatMylanmaybetheonlycompanyinS&P500withoutarealisticexpectationofatakeoverpremium.
Corporategovernanceisnotjustasoundbite.Ithasrealvalueramificationsandboilsdowntoasimple
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
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fact.
WehavehistoricallytradedatapremiumtoMylan;wedeservetotradeatapremiumtoMylan;andwewillcontinuetodosointhefuture.Whywouldwewanttoexposeourshareholderstoastockthatistrading,andjustifiablyso,ataninetimesmultiple?
Mylanclaimsthistransactionwouldbequote,meaningfullyaccretivetoshareholders,unquote.Theydosobyinventingyetanothercreativeinterpretationofwellunderstoodterms.
Asyoucanseeonslide26,nomatterwhatwordstheyattempttoputaroundit,theysimplycan'thidethatthisisadilutivetransactionforMylanshareholders.Ifyoutender,thisisthestockyouwillreceive.
AsISSrightfullypointsout,whywouldshareholderstakeontheriskofaManagementteamthatdoesnotofferaccretionuntilatleastyearfour?Mylanclaimsthattheyarewellpositionedtocapturethebenefitsoftheproposedtransaction.
Onslide27youcanseethelimitedopportunitiesforsynergies,aswellasasignificantintegrationandexecutionrisk.Ourconsumerfacingbusinessesrepresentapproximately75%ofouroperatingexpensesinnetsales.
Mylanhasvirtuallynopresenceintheconsumerfacingspace,whichmakesverticalintegrationandstreamliningacompletelyunrealisticwayofattainingsynergies.OfallMylan'sAPItheyhaveonlysixthatwouldsupportproductionofthe4,900OTCproductswemake.
Theydon'tmakeibuprofen,theydon'tmakeguaifenesins,theydon'tmakeacetaminophen.Meanwhile,RobertCouryandtheMylanteamhavetriedtoindicatethattheyarewell-positionedtocapturecostofgoodssoldsynergiesthroughverticalintegration.
Thisissimplynotthecaseanditdemonstratesthetruth.Theydon'tunderstandthisbusiness.
AsashareholderyouneedtoaskyourselfdoyoureallythinkMylan,withoutanyexperienceinthespace,canrunPerrigo'sworld-classOTCsupplychainandoperationsbetterandmoreprofitablythanwecan?IntheirpresentationMylanindicatesthattheirfourthtenantisquote,immediatevalueforPerrigoshareholders,unquote.
Asweandotherthirdpartiesseeit,thisisabaddeal.Wehaveaconsumerfacingbusinessatatimewhenquestionshavebeenraisedaboutprescriptionprices.
WewantnothingmorethantohavetheMylanofferlapseandtobeabletodeliverleadingshareholderreturnswithoutbeingtiedtoMylan'sanemicprospects.OurshareholderscandobetterthanhavetheirfortunetiedtoMylan.
Ultimately,ourrespectivehistoricallong-termreturnsspeakforthemselves.AgainIhavetoask,whywouldyoutradeourstockfortheirs?
Onslide30youcanseethattheguidanceweputforthearliertodayfor2015and2016isunderscoredbytheconsistencyofourtrackrecordindeliveringearningsgrowth.Historicallywe'vedeliveredanEPScompoundannualgrowthrateof19%,andeveryyearwehavedonesoonanincreasinglybiggerbase.
Thisisaleadinggrowthratethatdistinguishesusinthemarketplace.Andyoucanseeonslide31thatweareconfidentthistrendwillcontinue.
Further,wearecommittedtoleveragingourearningsgrowthtoreturnvaluethroughinitiatives,likethesharerepurchaseplanweannouncedtoday.AndthisisevenbeforeweincludetheadditionalupsidefromfuturestrategicM&A.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
EventDescription:Q32015EarningsCallMarketCapasofEventDate:22.92BPriceasofEventDate:149.66
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Iwouldliketowalkthroughthebuildingblocksonslide32togiveyougreaterclarityonthefinancialtruth.PerrigotodayoffersyougreatervaluethantheMylanofferonthetable.Letmeexplain.
Mylanhasreported$800millioninsynergiesbyyearfour.Usingbasicmathifyouassume25%synergyachievementin2016,thefirstyear,andaPerrigoshareholderownershipof40%,thisis$65millioninafter-taxnetincomebenefitin2016toPerrigoshareholders.
Incontrast,theoptimizationactionsweannouncedtodayataneffectivetaxrateofbetween14%and15%,wouldgenerate$94millioninafter-taxbenefitflowingdirectlytoPerrigoshareholdersin2016.Sotokeepitverysimple.
Justbyexecutingonourexistingplans,PerrigobeatsMylan'snumbers.AndPerrigoshareholdersretaincontroloftheCompanythathasdrivensuperiormultiplesyearafteryear.
Perrigoshareholderscomeoutaheadinnetincomeimpact,evenbeforeyouconsidercapitalization.Thestarkdifferenceincapitalizationofourtwocompaniesonlyamplifiesthisdifference.WhyseekcontroloftheCompanywithstandalonePerrigocanprovideyoumorevalue?
IntheirpresentationMylanreliedheavilyonaninventionconcept,ahypotheticalunaffectedsharepremium,orHUSP,whichisentirelyself-createdandself-serving.Asyousawinthelastslideyoucanseeagainonslide33,ourshareholdersshouldnotbeinterestedinamadeupHUSP.
They,likeus,arelookingattheveryrealmath.Nomatterhowyourunthenumbers,ourimpliedvaluerangesfrom$190to$202.Butdon'tjusttakeourwordforit.
Thisalignswithstreetestimates,whichcomeinatanaveragepriceof$203.AllofthesenumbersrepresentasignificantpremiumtowhatMylanisoffering,which,asablacknight,standsatapproximately$169pershare.PlusyouretainfullownershipandcontrolwithoutthetransactionorexecutionriskassociatedwithMylan'sbaddeal.Withthat,IwillturnitbacktoJoe.
JoePapa(Chairman&CEO):
OverthelastsixmonthsIsaiditcountlesstimes,thePerrigoBoardofDirectorsiscommittedtocreatingvalueforourshareholders.Thatmeansvalueinthenearterm,mediumterm,andthelongterm.
Youhavetwooptionsinfrontofyou:Mylan'soffer,whichdestroysvaluewithameagerpremium,lowfuturemultiple,limitedprospectforfuturegrowth,andaBoardandManagementteamthathaveshownablatantdisregardintheiractionsforshareholders'interest.AndthenthereisvaluerepresentedbyPerrigo'sdurablebusiness.
Weearnedourstrongmultiple,onethatwearepoisedtocontinuedeliveryonintothefuture.Wehavedeliveredconsistentdouble-digitbottomlinegrowthtimeandtimeagain,andthisasanoutstandingquarterisnodifferent.
We'vecommittedtoaccesstodaythatcombinedwithoursharebuybackprogramandourexistingstrongorganicgrowth,willgenerateanexpected$9.83inEPSvalueforshareholdersoverthefuture.AndthereisfurtherdrivehowevertousetowardsinorganicgrowthaswecontinuetoexecuteunderM&Astrategyasanaturalacquirerwithapremiummultiple.
Whenyoulookattheside-by-sideitispainfullyclearthatMylanistryingtostealthisCompany.Itbearsrepeating,wearestrongaCompanydeliveringvaluewellaboveMylan'soffertoday.
AllthisleadsmetoreiterateourconclusionthatthePerrigoBoardofDirectorshasreiterateditsstrongrecommendationsthatyouprotectyourinvestmentinPerrigoandnottenureyoursharesintoMylan's
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inadequateoffer.Ourfutureisbrightinthenearterm,themid-termandthelongterm,andweareexcitedtohaveyoualongwithusaswemoveforward.
Operator,Iwouldnowliketoopenupforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
MarcGoodman,UBS.
MarcGoodman (Analyst-UBS):
Iguessfirstofallthebrandedconsumerlookedalittlelightthisquarter.Couldyouspecificallyaddressthat?Andthenonthe$35millionofsavingsfromtheVMSbusinessdivestiture,Iwasalittleconfusedbywherethesavingsactuallycomefrom.Thankyou.
JoePapa(Chairman&CEO):
Iwillstartwiththebrandedconsumer.Andyouarecorrect.Thereissome--thatnumberisalittlebitbehind.
OneofthethingsthatMarc,thatyouactuallypointedoutinavideoyoudid,isthatourbrandedconsumerbusinessdoeshavesomedistributionofproducts,forgenericproducts,andasaresultofthisMylanofferwearehavingsomedifficulty,orwhatIwouldrefertoanegativesynergy,inshippingsomeofourproductsfromtheOmegaCompanyintoourdistributor.Thisisoneoftheabsolutelynegativesynergiesthatwepointedoutinthepast,andwe'reseeingtherealizationofthatasthecurrentdistributorisactuallyputtingofftheacceptanceofanyadditionalproductuntilwegetthisofferbehindus.
Andthatwehope,asIsaid,onNovember13thiswillbebehindusandwewillthengobackintoasituationwherewewillhaveabettersituationthere.ThebrandedconsumerbusinessIthinkJudymentioned,Iwouldsimplymentionasaresultofsomeofthedistributionproductsalesthathavenotoccurredduringthecurrentquarter.Judy,youwanttotakethesecondpartofthatquestion?
JudyBrown (EVP&CFO):
Absolutely.Hi,Marc.The$35millionisreferencedspecificallyonpage17ofthematerialswherewediscussstrategicportfoliorefinement.
VMShasbeenabusinessthatwe'vetalkedaboutpossiblylookingatstrategicalternativesforsometime.Group'sbusinessisperformingwellnowandwebelieveitiswell-positionedtodaytobedrivingundernewownership.
Butdon'tbeconfusedthatthispagedoesnotrepresentexclusivelyactivitiesthatrelatetoVMS.Thereareotherportfoliorefinementthatarealsoembeddedwithinthisexpertizednumber,andtheyarepartofour2015and2016plans.
We'respecificallyreferencingVMStodaybecausewearegoingtokickthatprocessoffsoon.Butsufficeittosaythereareotherthingswithinthatcompriseto$35millionofrunratebenefitonago-forwardbasis,wearejustnotspecifyingthosetodayindetailaswekickoffthoseprocesseslater.
Butsufficeittosayagain,thosenumbershavebeenreviewedindetailwithourauditorswhohavegone
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throughthisprocesswithustogivebothourBoardandyouconfidenceofourabilitytodeliveronthosesavingsintotherunratebeyond2017.
JoePapa(Chairman&CEO):
Operator,nextquestion.
Operator :
RandallStanicky,RBCCapitalMarkets.
RandallStanicky(Analyst-RBCCapitalMarkets):
DoesthisannouncementmeanthatyouarenownotevaluatingalternativetransactionstotheMylanoffer?AndmaybejusttalkaboutyourappetiteforM&Aingeneralandhowthatmayormaynotchangeaftertomorrow.AndthenIhaveonequickfollowup.
JoePapa(Chairman&CEO):
Yes.Ithink,Randall,thewayIwouldsayitisthatwebelievethattheMylanofferisabaddeal.Wehavesaidthatonnumerousoccasions.
Iwouldsaythatbecausetheyhaveputabaddealonthetablewedon'twanttoenterintoasecondbaddeal.IthinkJudysaiditverywell,peoplethatwantadealbadlydobaddeals.
Wewanttobesmartandthinkthroughoursituationinfrontofus.Havingsaidthatthough,itisclearthat--youknowusverywell.We'vedone27transactionsoverthelastnineyears,we'vedonefourtransactionssincetheinitiationofthisonApril8th.
Sowearegoingtocontinuetolookattransactionstobeclear,butaswe'vesaidtoyoutodaywethinkthebestinvestmentwecanmakerightnow,givensomeofthemarketuncertainty,it'sinourownshares.Wethinkthatisobviouslysomethingthat,atleastasyoulookatwhatthemarketplaceis,worthdoingrightnow.
Webelievethereisawonderfulopportunitytorepurchasesharesnowbasedonwherewethinkwearegoingtobeinthefuture,especiallywiththeseprogramsandactivitiesthatwe'velaidouttodayintermsofouractions.Soclearlywethinkthisistherightwaytogo.
JudyBrown (EVP&CFO):
Andjusttoaddcolortothat.Withthesharerepurchaseprogramwe'veannouncedtoday,wealsowanttogiveyouconfidencethatweplantofundthatthroughongoingcashflowsandtotheextentthatthereisanimportantM&Atransactionthatisinfrontofusthatwouldinanywayhinderourabilitytomaintaininvestmentgrade,wemaysuspendtheprogramforaperiodoftime.
Buttheintentionhereistokeeprebuyingoursharesthroughouroperatingcashflows.AndwebelievewecancontinuetoexecuteonaveryhealthyM&Astrategywhilemaintainingourveryhealthybalancesheetintothefuture,andcontinuetoaddincrementalorganicgrowthonago-forwardbasis.
RandallStanicky(Analyst-RBCCapitalMarkets):
Tobeclear,youcouldstillannouncewhetheritwillbeasmalldealoralargedeal.YoucouldstillannouncetransactionsupandtotheNovember13tenderdeadline,isthatcorrect?
JoePapa(Chairman&CEO):
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Iwouldsaythefollowing,wearesubjecttotheIrishtakeoverrulesandwefollowthoseveryclosely.Wecanintroducenewinformationuntilthe23.
Ifwebelievethatthereisasignificantopportunity,wewouldseektheabilitytodothatwiththeIrishtakeoverpanel.Obviouslywewouldhavemoretime,assumingtheywouldgrantusthatabilitytodothat.
IthinktheanswerisrightnowwebelievethisisthebestactionwecantakeasaCompany,andthisiswhywe'recomingoutwiththeseactionsthatwe'vetalkedabouttoday.Ifsomethingdidcomeup,Ithinkwehavesomealternatives,butwe'dhavetoworkwiththeIrishtakeoverpanelforthat.
RandallStanicky(Analyst-RBCCapitalMarkets):
Gotit.AndJudy,youtalkedaboutlimitedtoAPIoverlapping,andyou'retalkingabout$175millionincostsynergiestoday.Mylanistalkingabout$800million,againwithlimitedAPIopportunity.Whatisthedisconnect?
Istheremoreopportunityfromyourperspectiveforyouorarewetalkingaboutcostsynergytargetsthatwouldtaketoomuchoutofthebusiness?Canyoutalkaboutwhatthedeltabetweenthosetwonumbersis?
JoePapa(Chairman&CEO):
LetmestartandthenJudy,Iwillturnittoyou.OntheAPIs,oneoftheobviousquestionis--becausethatisaquestionthatMylanhasasserted,thattheyhaveopportunitiesforverticalintegration.SoIwentthrougheverysingleAPItheymake.
Theymakeover176APIs.Ofthattherearelessthanhalfadozenthathaveanyapplication,anyproductsthatwemanufactureatthePerrigoCompany.
Rightnowtheydonotmakeacetaminophen.Theydon'tmakeguaifenesin;theydon'tmakeibuprofen.
WhenyouthinkaboutwhatanOTCcompanyutilizes,theyjustdon'tmakeit.Sotherealityforthemtosuggestthatthereissignificantverticalintegrationisajoke,withallduerespect.It'sjustnotgoingtohappenbecausetheydon'thavethoseproductsintheirportfolio.
IftheyweretostartwithanAPImanufacturingandgeneratingaDMFitwouldtakethree,four,fiveyearstogetthatproducttothemarketplace.Forthemtosuggestthatverticalintegrationis--lookatthedata.
I'dinviteallofyoutolookattheMylanAPIpageandwhatproductstheymake.TheymakeHIVdrugs.
Idon'tbelievethosedrugsaregoingover-the-counterasanexample.ThosearethethingsthatIthinkpeoplehavegottolookintothefacts.Judy?
JudyBrown (EVP&CFO):
Iwanttomakesurethatwe'renotcomparingapplesandoranges.Ourdiscussionsonpages15,16,and17thatoutlinethevaluecreationoftheannouncedbenefitsstemfromourowninitiativesthathavebeenunderwayforsometime,asJoereferenced,tofullyleverageandutilizetheplatformsthatwehaveinplace.AsyoumayrecallweclosedtheOmegatransactionameresevendaysbeforeIrishtakeoverlawsfelloveruswiththeannouncementofMylan'sintentiontomakeanofferforus.
Inthatperiodoftime,inthatquietperiod,wewerealreadycontinuingtheworkofplanningtheleverageofthisplatformthatwehadinplacepostedElan,postOmega.Andthesupplychainbenefitswe'retalkingabouttodayrelatetoourconsolidationofprofitsandonecenterofexcellence,aboutthefocusofacoresingleglobalteamfocusingondrivingvaluetothatcombinedtrulyglobalplatformnow,and
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expandingthevaluecreationthatwillbepossibleallthewaythroughtheP&L,bothin2016andwellintothefuturewithotherconsolidationactivitieswithinoursupplychainandoperationsthatareoutlinedinthefollowingpages.
Wearenottryingtomixdiscussionhereonverticalintegration.WearefocusingonthevaluecreationpotentialofthemodelthatwehavewiththisManagementteamatoursuperiormultiple,andabletocapturequicklyincrementalenhancedvalueshareholdersimmediately.
RandallStanicky(Analyst-RBCCapitalMarkets):
Thanks,guys.
Operator :
LouiseChen,Guggenheim.
LouiseChen (Analyst-GuggenheimSecuritiesLLC):
Thanksfortakingmyquestions.Ihadafewhere.FirstquestionhereisjustcuriousifsomebodyelsecouldstillapproachPerrigoasanacquisitiontargetbetweennowandNovember13?Idon'tknowifthatfallsundertheIrishlaws.
Secondly,howshouldwethinkaboutorganicgrowthinthefourthquarterof2015?Wegotsomequestionsonthat.
AndthenlastthinkisIknowyouhaveanumberofpotentialnewproductlaunchesin2016;Nasacort,Flonase,theMucinexfamily.Iwaswonderingifyoucouldtalk--what'sincludingyourguidancethereandhowdoyouthinkaboutthoseopportunities?
JoePapa(Chairman&CEO):
Letmetakethem.There'sthreedifferentparts.CansomeoneelseapproachusthroughNovember13?Irishlawdoesn'treallyhaveaspecificruleonthis.Theycan'tpreventanyonefromapproachingus.WewouldtaketheactionsthatwouldneedtobetakenworkingwiththeIrishpanelshouldthatoccur.
Ithinkthereareclearlysomeopportunitiesthere,butIdon'twanttogetintoanyspecificsbecauseIwanttogobacktowebelieveafteranassessmentofallthefactsinfrontofusthatthebestactionwetakeistheactionthatwehaveinfrontofustoday.Especiallygivensomeofthemarketvolatilitythatwe'veallseeninthemarketplaceoverthelastthreetofourweeks.
Onthequestionoforganicandtherestof2016,IthinkwewouldstickwiththecommentsthatJudymade,andJudymaywanttoaddafewmorethings.Ijustwanttotalkalittlebitabout2016andyoucanperhapsaddress2015,Judy.
JudyBrown (EVP&CFO):
Sure.Thefourthquarter,aswe'vesaid,themaindriverofthesmallshiftintherevenueguidanceforthefullyearisprimarilyinthebrandedconsumerhealthcarebusiness.Ifyouareworkingyourmodels,whichI'msureyouare,basedonthebeginningoftheyearbroughtassumptionsaroundthetotalconsumerpoolgrowthyearoveryearandtheRXgrowthyearoveryear.
Youwillseethatyourmodelwillsaythatconsumer--sorry,pardonme,fourth-quarterrevenuegrowthwillbeslightlyslower.That'showtogetthemodeltowork.Butthat'salsoknowingthatwearemodelingintosloweryear-over-yearbasisversusthethirdquartergrowthrates.
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Butsufficeittosaythatthatisalsousforecastingintothemiddleofthecough,cold,fluseason.SowehaveputourmodeltogetheronthebasisagainofanormalDecember31cutoffthecough,cold,fluseason.Andthere'salwaysthedynamismthatcanhappenastheseasonkicksoffintheDecembermonth.
JoePapa(Chairman&CEO):
Andthislastpartofyourquestion,Louise,youaskedaboutthe2016.WhatIwouldsaythereiswegobacktowhatwe'vepreviouslysaid;thatweexpecttolauncha$1billionofnewproductsoverthenextthreeyears.
Thatisapproximately$330millionayear.Whatthatreallycomesouttois,asyoupointedoutsomeoftheimportantones.
TheFlonaseopportunitywebelievewehaveearlyinthe2016timeframe.WehavetheremainingportionsoftheMucinexfamilyofproducts,andwesitwithourRXportfoliowiththebestportfoliowe'veeverhadintermsofR&Dprojectsandproductsthatwillbeapproved.
Iwouldsaythatreallythosewillbetheprimarythingsthatwewilltalkabout.Obviouslyaswetalkmoreabout2016atthebeginningoftheyearhaveotherthingswe'lladdtoit,butthosearereallythebigproducts,thatMucinexfamily,theFlonase,andthetotalofsomewhereinthe$330millionnewproductswell.
JudyBrown (EVP&CFO):
CanIjustaddoneotherthingabout2015tomakesurethateveryoneiscrystalclear,becausetheremaybesomeconfusion.Theguidancechartthatisinthematerialandthatreferencesthefull-yearnumbersfor2015andthetighteningoftheEPSrangeto$7.65,$7.85doesnotincludeanythingfortheannouncedsharerepurchaseprogramthatwouldcommenceinthesecondhalfofNovemberandrunthroughDecember.Anyvaluefromthatwouldbeincrementaltothatguidance.
JoePapa(Chairman&CEO):
Thankyoufortheclarification,Judy.
Operator :
ElliotWilbur,RaymondJames.
Elliot Wilbur (Analyst-RaymondJames):
Ijustwanttogobacktosomeofthefinancialmetrics,particularlyontheconsumerhealthcareside.AndIthinkIaskedthesamequestionlastquarter,butIthinkit'simportanttocalloutagainintermsofjustthestrongmarginexpansionperformanceoverthelasttwoquarters.
Andthatcertainlyisdrivenprimarilyatthegrossmarginlevel.Butyou'retalkingaboutimprovementsversuslongertermaveragesof400to500basispointsinaprettyshortperiodoftime.
Andcertainly[thebessuggested]there'sbeenastructuraluptickinthemarginprofileofthatbusiness.AndagainwantedyoutowalkthroughsomeofthekeydriversofthatbecauseIdothinkit'saveryimportantchange.
JoePapa(Chairman&CEO):
Sure.I'llstartandJudyyoucanaddsomethings.AsJudysaidduringthecall,oneofthethingsthatwe
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aredoingincrediblywell,wehaveatremendousfocusintheorganization.
Theorganizationunderstandsthefocusthatneedstobebroughttothisquestion.Andthatfocushasbroughtwithitjustanincredibleefficiencyinourmanufacturingsupplychainprocurementandalsowhatwe'vebeenabletoaccomplishjustbyworkingwithourvendors.
WearethelargestconsumerprocureroftheAPIsfortheseproducts,sothereforewethinkwegetthebestpricesintheworld.OnceagainIthinkthatwe'rejustshowingtheleveragewehaveinourbusinessaswehavebeenrelentlesslyfocusingonthisoperationalefficiency.Judy,doyouhaveanythingtoaddtothat?
JudyBrown (EVP&CFO):
Joe,youhititspoton.It'sproductmix.Wehadfavorableproductmix.
Theoperationsteamisoperatingonallcylinders,andwhatisgreatisthattheteamcontinuedtomakeinvestmentsinthebusinessinconsumerhealthcare.Sotherewasnotasacrificeofinvestmentinthefutureorappropriatepromotionalspendtosupportproductlaunches.Andtheystillobviously,asyoucanseedidaterrificjobwiththeoperatingmarginexpansioninthequarterbothsequentiallyandyearoveryear.
Elliot Wilbur (Analyst-RaymondJames):
IfIcouldaskasecondquestionaswellitwouldbeappreciated.SpecificallywithrespecttoperformancetrendsintheRXgenericbusiness.
Historically,ofcourse,that'sbeenoneofthestrongercontributorsintermsofyear-over-yearoperatingprofitgrowth.Andoverthelastcoupleofquarterssaleshavestalledoutatthe$250million,$260millionlevelonaverage.
AndIguesssortofbackingintorevisiontofour-yeartoplineguidanceandthenwhatyoutalkedaboutintermsofthepercentagecontributionfromthatbusinesslastquarterwouldsuggestafourthquarternumbersomewherearoundthe$300millionmark.AndIdon'tknowifit'sstillrealistictoexpecttostepupthere.
ButJoemaybecanjusthitonsomeofthekeyperformancemetricsthereandwhetherornotweshouldbeexpectingsequentialgrowthofthatmagnitude.Andthenmaybemoreimportantly,obviouslyfinancialmarketshavebecomeveryconcernedaboutthepriceinflationcomponentofgrowth,bothonthegenericandbrandsidegoingforward.
Andcertainlythegenerictopicalbusinesshasbeenoneofthefewsegmentsofgenerichistorythathasreallybenefitedfromastrongoverallpricingdynamic.Andthinkingabout8%to10%growthnextyear,howmuchdoyouthinkthatisgoingtobedrivenbyprice?
Ordoyouthinkwe'vekindofhitaninflectionpointmaybewheregrowthmetricscanbefarlessdependentonprice,andmaybeweareactuallylookingatpotentialnegativeimpactonpricegoingforwardinthatsegment.Thanks.
JoePapa(Chairman&CEO):
Ithink,Elliot,youhadaboutthreeorfourthingsIwanttocommenton.Numberoneontheperformanceofthebusiness.IwouldrepeatIguessmycommentfromthesession.
Wedidsee34%improvementintheRXpharmaceuticalsegment.Soit'saverysignificantgrowthrateat34%.Iunderstandyourcommentaboutexpectations,butIwouldsimplysaythatweenterintothisfourth
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quarterin2016withthebestpipelinethatwe'veeverhadinourRXproductcategory.Wefeelveryoptimisticaboutwherewe'regoingtogofortherestofthequarterandthenobviously2016basedonthesenewproductsflow.
Onthequestiononpricing,certainlyweseethatoutinthemarketplace,butIwouldremindtheaudiencetodaythatwhatwe'vealwayssaidaboutpricingisthatourpricingacrossourtotalbookofbusinessisupflattoupslightly.Whiletheremaybeaproductthatwedoraisethepriceon,thereareotherproductswe'retakingpricedown.
Ourtotalstrategyforpricing,asIhavesaidIthinkonnumerouscalls,istokeeppricingflattoupslightly.Whichmeansthatyes,somepartswemayattempttoraisepricesthere,butinotherproductswe'rebringingthepricedown.Sothinkaboutusaskeepingpricingflattoupslightlyasreallythewaywe'regoingtolookatourtotalportfolio.
Whetherwearetalkingaboutanyspecificproductoranyspecificcategoryoranysegmentofourbusiness,theoverallcommentisflattoupslightlyforourpricing.AndIthinkthat'sreallythebestplaceforthelong,sustainableconsistentapproachtopricingthatwe'vehadinthepast;wewillinthefuture.
Operator :
AnnabelSamimy,Stifel.
Unidentif iedPart icipant (Analyst-Stifel):
ThisisAndrewinforAnnabel.Ijusthadacoupleofquestions.DoyouseeanyotheropportunitiesinternationallyintheneartermtofurtherleveragetheOmegaplatform?
Areyoulookingtoexpandanywherethere?AndsecondiswhatisyourtimelineforthesaleofyourVMSbusiness?Thankyou.
JoePapa(Chairman&CEO):
Yes.Numberone,doIseeanyopportunitiesforaddingadditionalproductstoourOmegabusiness?Theanswerisabsolutelyyes.
WhatIwoulddescribetoyouisthatwebelieveOmegaisexactlyinthesameplacethatourconsumerhealthcareUSbusinesswaseightyearsago,nineyearsago.AgreatbusinessOmegahastoday,butwedobelievethere'sopportunitiestoboltonadditionalproductsandadditionalgeographiestosellmoreproductstoourexistingcustomers.
We'vegotagreatnetworkofsalesrepresentativesandpharmaciesthatwedobusinesswithtoday.Webelievethatbyadding--boltingonadditionalproductstothatcategorywecandrivesignificantlytheleverageinourOmegacapabilities.
ObviouslycouplethatwithourabilitytoreducethecostofgoodssoldforOmegabybringingmoreproductsintoourdistribution--I'msorry,intoourmanufacturingplants.WethinkthatwilldrivetremendousbottomlineforOmega.
OnthequestionofthetimelineforVMS,IthinkwewillstickwithourcommentthatweinitiatedtheprocessforsalebasedontheabilityfortheCompanytoturnaroundtheperformanceofthatbusinessoverthelastcoupleofyears.Wenowthinkthebusinessiswell-positionedforthesaleoftheasset,andwewillbeinitiatingthatprocess.Idon'twanttomakeanyspecificcommentsaboutwhenthatwillbeconcluded,butwehaveandwillmoveforwardwiththeinitiationofthatsalesprocessfortheBMSbusiness.
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Unidentif iedPart icipant (Analyst-Stifel):
Great,thankyou.
Operator :
GreggGilbertwithDB.
GreggGilbert (Analyst-DeutscheBank):
Judy,firstcouldyouprovidecashflowfromopsinthequarter?
AndsecondlyforJoe,inthepastyou'vesuggestedthatifPerrigowereforsaletherewouldbeinterestedparties.Isthatstillthecaseandhasthatthemebeenfullyexplored?Thanks.
JudyBrown (EVP&CFO):
Greggonthequestionofcashflow,sufficeittosayweacceleratedourprocessandclosedtoannouncetodayearlierthanournormalprocess.WearefarenoughalongthatIcansaythatweareinlinewithourfull-yearoperatingcashflowguidanceprovidedearlier.
Wearenotdone,done,doneonoperatingcashflow,butitwasagoodcashflowquarter.Andwewillbeputtingallofthefinancialstatements,includingthebalancesheetandcashflow,outwiththe10-QwhichwillbefilednolaterthanNovember6.
JoePapa(Chairman&CEO):
Onthesecondpartofyourquestionarethereotherinterestedparties?Gregg,IthinkIwillgobacktomypreviousstatementthatImadeinApril.WhenthisdealwasfirstannouncedIdidreceiveseveralinboundphonecalls.
ThoseinboundphonecallswereinterestedinthePerrigoCompany.IthinkI'mgoingtostandwiththatcommentrelativetowhereI'llgowiththat.
Ithinkthemoreimportantcommentisthatasacompany,PerrigohasbeenveryactiveinM&Aasyouknow.JustbecausewehaveabaddealinfrontofusfromMylan,Idon'tthinkIwanttoputourselvesontheshotclocktosayokay,nowisthetimetosellthisbusiness.
Youobviouslyseewhatthemarketslooklikerightnow.WethinkthatthisisnottherighttimetosellourCompany.
IfthoughthereisanofferthatcomesonthetablethePerrigoBoardofDirectors,aswe'vesaidpreviously,isnotagainstdeals.Wejustdon'twanttodoabaddeal.
Ithinkwewouldcontinuetoevaluateanyotherdealthatcomesforward,butwe'renotonashotclocktosaylet'strytosellthebusinessrightnow.BecauseIreallydothinkthelinethatJudymentionedandweheardfromoneofourinvestorsisabsolutelytrue.
Ifyouwantadealverybadlyyou'regoingtogetabaddeal.AndIreallydon'tthinkthat'sthewayweshouldapproachthisgivenwhatwebelieveisaverystrongfutureforthePerrigoCompany,bothinthenear,themid-,andthelong-termpartofthisbusiness.Ithinkwewillleaveitatthat.
GreggGilbert (Analyst-DeutscheBank):
Thankyou.
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Operator :
JasonGerberry,Leerink.
JasonGerberry(Analyst-LeerinkPartners):
IjustwantedtofollowupfirstonMarcGoodman'squestionabouttheOmegabusiness.Canyouquantifytherevenueimpactofthisdistributorissueasrelatestothebrandbusiness?
AndthenmysecondquestionontheOpExfront,canyoujusttalkusthroughthestepupin4Qinspendbasedonyourfull-yearguidancemetrics?Andhowmuchofthatishavingconservativediscretionaryspendintheeventthatthisconsumerbrandbusinesscomesuplightagainin4Q?Thanks.
JoePapa(Chairman&CEO):
I'mgoingtostartwiththat,thefirstpartofthequestion,andI'llprobablyjuststickwiththecommentthere.Intermsofthetotaldistributionbusinessthatwehave,it'sover$100milliononanannualbasis.Iwilljustleaveitatthat.
Relativetowhathappenedinthequarterthough,Ithinktheissueisreallythequestionofanegativesynergythatwepointedouttoyoubefore.Thisisjustareal-lifeexampleofithappening.
Asthe--thereisachangeofcontrolinthiscontract.Thatchangeofcontrolinthiscontractwouldbeexecutedshouldthetransactiongoforward.
Ijustthinkthisisareal-lifeexamplewearealreadyseeingofasituationthatIpointedouttoyoubeforethatifthereisachangeofcontrol,therewillbenegativesynergies.Hereisthefirstexamplethatyouareseeingthere.
Sufficetosayit'sover$100millionofrunrateforthisbusinessonanannualbasis.AndIthinkI'mjustgoingtoleaveitatthatpartofthequestion.Judy,doyouwanttotaketheadditionalcommentorquestionrelativetothefourthquarter?
JudyBrown (EVP&CFO):
Ijustwantedtomakethecomment,IthinkthequestionwasdirectedtowardsoperatingexpensesandthevariablespendorwhatManagementcanandwon'tspendandanyonequarter.IfIlookatjustourcoreconsumerbusinessspendontheSG&AfrontaswellasR&D,theycontinuetospendinthequarter.
Theycontinuetomakeinvestmentsandstillgrewoperatingmargin.Soyes,thereisvariablespendineachofourbusinessunitswithanoperatingexpense,butthosewerenotcompromisedinanywayinthisquarterandwecontinuetoplantomakeinvestmentsinQ4.Theresultsyouareseeing,theoperatingmarginexpansionwaswithcontinuingtomakethoseinvestmentsasopposedto,Ijustwanttoclarify,itisnotasifthesegreatmarginresultsinthequarteraretheresultofpullingbackonthosevariableexpensesandthosevariableinvestments.
JoePapa(Chairman&CEO):
ProbablybesttolookatthenumbersthatJudytalkedaboutforthegrossmarginexpansionthatreallyaccentuateswhatJudyjustsaid.Thatisreallywhereyouareseeingthesignificantimprovementsingrossmarginastheresultoftheefficiencyofouroperationsandsupplychain.
Operator :
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DavidSteinberg,Jefferies.
DavidSteinberg (Analyst-JefferiesLLC):
FirstquestionisifMylanindeedwastolosethevotecouldPerrigothenprovidesomelonger-termguidancelikeFY17orevenbeyondtogiveinvestorsabetterperspectiveofwhatyourlong-termgrossprofilemightlooklike?
JudyBrown (EVP&CFO):
David,I'lljustgrabthisfirstandI'msureJoeisgoingtowanttoelaborate.Justtopointout,Icanfindthepageinthematerial.Inmyvernacular,withexpertizationsupportbehindusknowingthatthereisalotofsensitivityonquote,long-termguidance,Ibelievethatpage18representsawaytostartvisualizinglong-termgrowth.
WhatdoImean?We'vetalkedinthepastaboutonApril21confirmingourlong-termpromiseorgoalsettingintermsoftopline,5%to10%,andwe'vealsoprovidedonpage18awaytostartviewingcalendar2016,layeringonthevalueofareduceddenominator.
Sofewersharesoutstandingattheendof12/31/15whichwillprovideincrementalvaluethrough2016throughthesharerepo.Weexpectthesharerepotocontinuethroughout2016whichwillprovideadditionalincrementalgearingontoEPS.
Weexpectrunratesynergiestocontinueasweexit2016androllinto2017,andwehavehadexpertizationworkdonetoquantifyandexpertizethebenefitofthatactivitythatgoesinto2017.Asyouaremodelingyouarealreadyputtingintotheorganicgrowthrateon5%to10%,andourgoalonalwaysdrivingEPS,excludingalltheseothersharerepurchasepiecesandexcludingthesebenefitpieces,ofgrowthinexcessofthattoplinegrowth.
Withoutgivingyouanumberorathree-yearEPSnumber,wearealready,IbelievecreatingapictureofanillustrativeEPS[clutch]sharerepothatgoesintothefuture,andwewillcertainlybeinapositiontoprovideyoucoloronthosedriversandbetterclarityaroundthecomponentsthataregoingtogiveusconfidenceinoutyears.Butinmyvernacular,wehaveexpertizedgroundworkalreadylaidtolookatthatnumbergoingupandtotherightintothefuture.
JoePapa(Chairman&CEO):
IthinkJudystateditverywell.TheonlythingIwasgoingtoaddtoyourcommentisit'snotif,it'swhentheMylantenderofferfails.That'swhatIwouldaddtothecomment.AndI'dsayayearfromnowwewillbeastronger,better,morevaluablecompanyaswegettothefuture.Justwanttomoreimportantlyjustcorrecttheword,Ithinkit'swhennotif.Thankyou.
Operator :
TimChiang,BTIG.
T imChiang (Analyst-BTIG):
MyquestionisreallyjustonyourRXpharmaceuticalbusiness.Youknowyou'vegivensomeorganicnetsalestargetsforgrowth,8%to12%,andthat'sfinebutitdoesseemlikethattypeofgrowthisalotlessthanwhattypeofgrowthyou'reexperiencingtoday.
AndInoticedthatyouannouncedthestockbuybackprogram.ShouldIlookatthatandsortofviewitasyou'velookedatotherpotentialacquisitions,butatthispointyourbestoptionistobuybackstock.IsthathowIshouldlookatwhyyouaredoingthestockbuybackrightnow?
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JoePapa(Chairman&CEO):
I'mgoingtostartwiththefirstoneaboutourRXpharmaceuticalbusiness,andthenIthink,Judy,youcanmakesomecommentsspecificallyaboutthesharerepurchaseprogram.OntheRXpharmaceuticalsbusiness,youarecorrect.Wehavestatedan8%to12%growthratefor2016.
Thatisabsolutelycorrect.Thatisbelowwhatwehavedonehistorically,butthefactthatwearedoingacouplethingswiththatbusiness.Numberone,stillgrowing8%to12%thinkisveryimportant.
Numbertwo,Ithinkwe'vegotourbestpipelineeverwiththatproductcategoryofRX.Sowestillfeelveryoptimisticaboutthefuture.Andthennumberthree,wealsofeelverygoodaboutthe--boththegrossmarginandtheoperatingmarginsinthatbusiness.
Couldwedoslightlybetter?Perhaps,butIthinkrightnowwefeeltherightansweristoputforthanumber,that8%to12%growth,webelievethat'stherightnumber.
Itwillbebasedonthenewproductintroductionswehaveinthebusinessasreallybeingthemajordriverforwherewearegoingwiththatbusiness.AndIdothinkthat'saverystrongbusiness,bothintermsofthetoplinegrowthandalsotheverystrongoperatingmarginsandgrossmarginswehaveinthebusiness.Judy,doyouwanttohandlethesecondpartofthequestion?
JudyBrown (EVP&CFO):
IhavetocommentinadditiontowhatJoejustsaidabouttheRXgrowth.Sufficeittosayatatimewhenthegrowthratesthatweprovidedwerelargerpercentages,thebusinesswashalfthesize.
Wehaveabusinessthatisover$1billion.We'retalkingaboutgrowingthatbusiness8%to12%intothefutureoff$1billionbaseandcontinuingtoaddnewproductsintotheportfolioonago-forwardaswell.
Andwithindustry-leadingoperatingmarginsthathavecontinuedtobestableforfull-yearrunratebasis.SoIthinkaboutthatinavery,verypositivelight,andI'minnoway,shape,orformlookingbackonthat8%to12%negatively.Ithinkit'saphenomenalnumbergivena$1billionbase.
OntopofthatIdon'tinanyway,shape,orformseethesharerepurchasethatwe'reannouncingtodaytobeanindicationofeitherthepipelineofcorporatedevelopmentgettingsmallerorrunningoutofideas.Infacttherearemanygreatideasoutthere.M&Atakestime.
Peoplewhodowanttodofeelbadlydobaddeals.WedotherightdealsattherighttimeattherightpricetodelivertherightshareholdervaluethatwecanfeelconfidentbringingtoourBoardandbringingtoyou.Atthistimewearecollectingcash.
Weareacashgenerativemachine,andthepositionofourCompanytodayissuchthatwebelievewecancapturewhatisanomalyinthestockpricerightnowwiththemarketvolatilityandtheoverhangthathasbeencreatedbythissituationwithMylantocapturethat.It'sagoodinvestmentforyouforustodothisrightnowinanacceleratedstyleofbuyingbeforetheendofthecalendaryear.
Tokeepthatondeckinto2016and2017,iftherightdealscomeforwardwewillabsolutelyseizethoseandkeepourbalancesheetcredentialsfirmandintact.Thatiswhoweareandwhatwestandfor,butweneedtocaptureanomaliesthatareobviouslyevidentinthismarkettoday.Anditdoesnotwaiveronourconfidenceandgrowththatwe'vequotedtodayinmanydifferentplacesinthismaterialaswellasourabilitytocontinuetogeneratecashandfindgreatdeals.
JoePapa(Chairman&CEO):
Thankyou,Judy,goodcomments.Operator,nextquestion.
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Operator :
SumantKulkarni,BankofAmerica.
SumantKulkarni(Analyst-BofAMerrillLynch):
Thismightbebeatingadeadhorse,butcouldyoucharacterizethetypesofM&Aopportunitiesthatareoutthere?AndhowwouldthatchangeifOctober23wasnotaroundasapotentialdeadline?
Andsecond,couldyoualsotalkaboutyourOmeprazolefranchise,becauseitseemsliketherehasbeenarecentParagraphIVchallengeinthat.AndhowistheCompanythinkingaboutadditionalcompetitionthere?
JoePapa(Chairman&CEO):
OntheM&Asideyouarecorrect,asweareinthemidstoftheOctober23timing,wethoughjusttobeclear,Iwanttoprobablysaythisonemoretime.Irishlawisnotdesignedtolimitthealternativetoshareholders.Irishlawisdesignedtogetthebestforshareholders.Therearethingsthatwewillcontinuetolookatanddoandobviouslywewillneedtobeveryinclosecontactwiththetakeoverpanel,butclearlywewilldowhatwethinkisrightforourshareholders.
OnthequestionofM&A,beyondthatintermsofwhatwearelookingat,it'sallthosethingsthatwe'vetalkedaboutinthepast.WehaveduringthistimeperiodsinceAprillookedatanumberoftransactions.
Wehavecompletedfourtransactions;we'velookedatevenmorethanthat.Inlookingatthosetransactionswe'velookedfordealsthatarestrategic,accretivetoourearnings,andmeetourreturnoninvestedcapitalhurdles.
Thosearethekindofdealswe'regoingtocomebacktoyouon.AsI'vesaidinthepast,therearethingsthatweareinterestedin.Weareinterestedinopthalmics,we'reinterestedinadultnutrition,we'reinterestedinthediabeticarea,we'reinterestedinpetcare.
Thosecontinuetobetheareasthatwehaveinterestin.BeyondthatwedothinkwehaveaverystrongRXbusiness.ThatmakessensetoustocontinuetolookintheRXcategory,albeitthoughI'mnotgoingtotrytobethelargestplayerinRX.
Iwanttotrytocontinuetofindproductsthathavebarrierstoentry.Ourportfolioispredominantlyproductsareextendedtopicalsordermatology,respiratory,nasal,ophthalmic.
We'llcontinuetolookatthosetypesofproductorotherproductsthathaveasignificantbarrierssentry,likehormonalproductsorcontroldrugs,narcoticsforexampleoranythingthatisn'tinasustainedreleasecategory.Butthosewillbetheoneswepredominantlywilllookat.
FinalcommentIwanttomakeisrelativetogeography.WethinkthatthepipelineofopportunitiesthatwehavewithOmegaisverysignificantintermsoffindingadditionalproducts,additionalcategoriesthatwecanboltontotheOmegabusiness.
ThesecondpartofyourquestionIthinkwasOmeprazoleandthefranchise.Weclearlyareawareofthem,someadditionalParagraphIVfilingsonOmeprazole.Weareawareofit;weareworkingverycloselywithourpartnerDrexel.
Wethinkwe'vegotaverystrongposition.Youprobablyhaveseensomeadditionalproductsthatwe'vegottenapprovedintheOmeprazolefranchise;everythingfromthewildberrytotheOmeprazolemagnesium.
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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Weareverycomfortable.Wehaveanunderstandingofwhatishappeningthereandwhatwewillbelookingoutforthefutureinthatcategory.
Operator :
DouglasTsao,Barclays.
JoePapa(Chairman&CEO):
Operator,let'scomebacktothatquestionifthereisanotherquestion.
Operator :
LindaBoltonWeiser,B.Riley.
LindaBoltonWeiser (Analyst-B.Riley&Co.):
Iknowyouspokeaboutacoupleofthenewproductopportunitiesfor2016,butcanyoujustremindusallintermsofthetimingofthestorebrandNexiumproductthatyoucouldpotentiallybringtomarketwhenthatwouldpotentiallybe?Andthensecondly,sorryifyousaidthisalready,butintermsoftheseoperationalcostsavingsandactionsthatyouaretaking,werethesethingsthatyouhadplannedanyways?
Likethatwaskindofsomethingyouhadbeenthinkingaboutandyoujustacceleratedtheactiontodoit?AndiftherewasanythingthatyouincrementallycameupwithIguessaspartofthisprocess.Maybeyoucouldjustexplainkindofthebackgroundofhowthat--yourthinkingonthatsideofit?Thanks.
JoePapa(Chairman&CEO):
Sure.IwillstartwiththeNexiumcommentandtalkalittlebitaboutourapproachhereingeneral.ThenJudymaywanttomakesomeadditionalcommentsontheoperationalcostsavings.
Numberone;thestorebrandNexiumopportunityisa2017event.Thatistheexpirationof--thethreeyearsofexpirationofmarketexclusivity.Sowewilllaunchthatin2017.Astojustageneralcommentontheoperationalsavingsthatwe'velookedatandwhatwe'vedoneoncost,yes,it'ssomethingwe'vehadinourmindsforsometime.
OneofthethingsthatwhentheoffercameinfromMylanandputusintoanofferperiod,thatofferperiodmeansthatyouneedtogetthethingsthatyouhavedoneexpertized.Thatiswhatwehavedone,butit'sverydifficulttogetthingsexpertizedover12months.
Sowewerenotatapointwherewecouldreallytalkaboutituntilwejustgotheretoday,IthinkasJudymentionedandImentionedinmycomments.Ithinkwefelttodaywasthedaythatwearealmostessentiallyin2016;nowisthedaytoreallystarttalkingaboutit.
JudyBrown (EVP&CFO):
Talkinginvaguequalitativestrokesaboutinitiativesunderwaywithoutputtingdollarsonthemandattachingthemtoaguidancenumberorsomeframeworkthatyoucanuseinyourmodelingwouldwebelievecertainlyhaveperceivedaswishy-washy.Theinitiativeisunderway,postElan,establishmentofaEuropeanglobalbase,theacquisitionofOmega.
WetalkedatlengthatthetimeoftheacquisitionofOmegaaboutourusingthatasournextex-USglobalgeographicexpansionbase,leveragingourglobalsupplychain,utilizingourIrishheadquarterstopullouroperationstogetherandcreateabase.Wehavebeentalkingabouttheseitemsforsometime,
CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs
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wejusthaven'tquantifiedthem.
AndasJoejustsaid,aswearenow10weeksoutfromtheendofthecalendaryearwearenowinapositiontobeabletobothexpertizeourcalendar2016andquantifyforyoutogiveyouasolidframeworkofunderstandingourconfidenceinthatyear-over-yearstronggrowthrate,whyyoushouldfeelgoodaboutthe2016numbersandtheunderlyinginitiativesthatbuttressthisplan.
JoePapa(Chairman&CEO):
AndIthinktheonlythingI'daddtowhatJudysaid,IthinkasJudywentthroughthenumbersIthinkitisveryclearthatifyoustartwiththe$9.30,youaddthesharerepurchaseofapproximately$0.15,yougetto$9.45.Andifyouthinkabouttherunrateofwhatwe'vesaidwillbearoundthe$9.83.
ThefundamentalquestionIthinkfortheshareholdersiswherewouldyouratherseethat?WouldyouratherseethatinaPerrigoPEmultipleofaballpark20times,orwouldyouratherseeitinaMylanPEmultipleofapproximately10times.Ithinktheanswertothatisveryclear,thatthePerrigosituationisamuchbettervaluecreationforourshareholders.
Operator :
JamiRubin,GoldmanSachs.
ArielHerman (Analyst-GoldmanSachs):
ThisisArielHermanonforJami.CanyouexplainhowyouarethinkingaboutthecompetitivelandscapeinmultiplesclerosisrelatedtoyourTysabriroyalty?AndspecificallyinlightofcompetitionfromRoche'snewdrug.
Andthenwiththegenericsbusiness,sothisyearyouhadabenefitfromgenericAndrogel,sohowshouldwethinkabout2016?IknowthatyouhaveasettlementforProAirintheendofDecember,butarethereanyotherbulkieritemsthatweshouldthinkfor2016?
Andthenjustlastlyquickly,isthereanyseasonalityinthebrandedbusinessortheOmegabusinessthatweshouldbeawareof?Thankyou.
JoePapa(Chairman&CEO):
Sure.LetmestartwiththeMSone,thengettotheRXportfolio,andthenwe'llgettobranded.OnthequestionofMS,wethinkweareinagreatspotwithTysabri.
WethinkTysabriasaproductisaveryimportant--inaveryimportantpositionforthepatientswithMSanditisinthehighlyeffectivecategory.Ibelievethatasadditionalproductscomingwithhighlyeffective,whattherealityisisthatpatientswillmigratemorefrequently,morequicklytothehighlyeffectiveproductsovertime.
Ithinkwe'llwaitandseehowthemarketplacedevelops,butwedothinkthatthereissomeimportantadvanceswiththesehighlyeffectiveproductsversusthewhatIwouldsaythecategoryoftheproductthatpatientsusuallystartontoday.SowedothinkthehighlyeffectiveproductswilltakeabiggerpositionasageneralruleinthetreatmentofMS.AndclearlywearedelightedtobeworkingwithBiogen,whowethinkisagreatpartnerforus.
OnthequestionoftheRXportfolio,I'mnotgoingtogointoallthespecificproducts,butjustsufficetosaywhatmycommentfrombefore,wethinkwehaveourbestpipelineeverofnewproducts.WewilltalkmoreaboutindividualproductsaswegetcloserintoJanuaryandFebruarytimeframe,buttherealityisit'stheportfoliowe'veeverhadandwelookforwardtosomeadditionalnewproductlaunches.
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Youarecorrectthat2016wasfavorablyimpactedbytheequivalentoftestosterone,1%Androgel.We'vegotanumberofothernewproductsthatwe'llbelaunchingandgivesustheconfidencetotalkaboutthat8%to12%growthinourRXcategory.
Onthefinalpointonthebrandedbusiness,thereissomeseasonalitytothatbusiness.Itiseffectivelyonthecalendarquarter,itisthequarterthatisApril,May,andJuneisastrongerquarter.AndalsothequarterthatisIwouldrefertoitasOctober,November,Decemberwouldbethetwostrongerquartersaswegetreadyforeitherthesummerseasonorthecough,cold,fluseason.IthinkIansweredallthreeofyourquestions.
JudyBrown (EVP&CFO):
Summerseasonjustbeing,justtoclarify,thereareseveralproductsintheportfolioinEuropethatarefocusedonweightlossandslimming.Sothinkaboutitintermsofpeoplegettingreadyforthesummerbeachseason,justtokindofputaquiponit.
ArielHerman (Analyst-GoldmanSachs):
Great,thankyou.
JoePapa(Chairman&CEO):
Operator,wehavetimeformaybeonemorequestion.
Operator :
DouglasTsao,Barclays.
DouglasT sao (Analyst-BarclaysCapital):
Justifyoucould,Judyobviouslyranthroughsomeofthenumbersintermsofthelackofoverlap,trueoverlapwithMylan.IjustthoughtitwouldbemaybehelpfulforyoutowalkthroughsomeofthecapabilitiesontheconsumerhealthbusinessthataredistinctfromMylan'straditionalbehindthecounterpharmacyfirst?Prescription,genericbusinessandsomeoftheskillsetsandthingsthatarenotnecessarilyveryeasilyintegrated.
JoePapa(Chairman&CEO):
IwillstartwiththatandJudypleasejumpin.Onthequestionof--Ithinkthisgetstoaveryfundamentalquestion,whichmanagementteamdoyouthinkcanrunthestorebrandbusinessbetter?PerrigoorMylan?
Perrigohasa128-yearhistorywiththis,soIthinkthatbydefinitionanswersthequestion.Havingsaidthatthoughlet'stalkaboutthedifferences.
Thefirstcommentisthatourproductshavetobemasscustomized.Youhavetomakesuretherighttablet,rightbottle,rightlabel,rightcartongoestotherightcustomer.That'ssomethingthatwedoandwedoverywell.
NoonehasthecapabilitiesinthisbusinesstodothatlikePerrigodoes.I'vehadachancetobeinthisbusiness32years,IcantellyouthatI'vehadachancetoseealotofpharmaceuticalbuildings,alotofplaces,packaging,andlabeling.NoonehasthecapabilitiesthatPerrigohasasevidencedbythefactthatthat'swhywehavethemarketsharewehave.
Ithinkthesecondpartofthisisthatwearethelargestprocurerofrawmaterialsfortheover-the-counter
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products.Webuyacetaminophenwebelievebetterthananyoneintheworld.Webuyaspirinbetterthananyoneintheworld;webuyibuprofenbetterthananyoneintheworld.
Tosuggestthatyoubecauseacompanycandoverticalintegrationthey'regoingtobeabletomakeourrawmaterialsatabetterpricepointisnotcredibleinthesensethattheydon'tmakethoserawmaterials.Theydon'tmakeguaifenesin,theydon'tmakeibuprofen,theydon'tmakeacetaminophen.
Forthatreasonclearlywethinkwehaveamuchpreferredpositionbecauseweknowhowtorunit,weknowhowtodomasscustomization,wemakerawmaterialsand/orprocurerawmaterialsforthebestpricesinthebusinessrelativetothe--becauseofthesizeofourbusiness.Forthosereasonswethinkwearethebetterteamtorunthisbusiness.
JudyBrown (EVP&CFO):
Justtoaddtheillustration,andIknowmanypeopleonthecallhaveseenourpresentationdozensifnothundredsoftimes.Wefrequentlytalkaboutourbusiness,ouruniquepropositionasathree-leggedstool.Athree-leggedstoolcannotstandononeleg.
Wearepharmaceuticalmeetscomplexsupplychainmeetsfast-movingconsumergoods.Thefast-movingconsumergoodsmasscustomizationconsumerpromotionalknow-howfallsawayasanoverlap.
Andthesupplychain,whilecertainlyMylanhasasupplychain,theyarenotmasscustomizedtofitthespecificrequirementsthatJoewasjustdiscussing.Tobeabletododifferentpackages,differentsize,differentendcapallcustomizedandvendormanagedonbehalfofourcustomersisdramaticallydifferentthantheclassicpharmaceuticalmodel.SoIcomebacktoathree-leggedstoolwithoneandone-quarterlegscannotstand.
JoePapa(Chairman&CEO):
Thankyou,Judy,forthosecomments.Thankyouagaineveryoneforjoiningusandtakingthetimetodaytolistentoourcomments.Weareveryexcitedaboutthefuture,andIthinkwe'velaidoutaprogramthatwebelievegivesusaverybrightfuturebothinthenearterm,themid-termandthelongterm,andweareexcitedtohaveachancetoshareitwithyoutoday.
We'lllookforwardtoifyouhaveotheradditionalquestionspleasegetintouchwithus.We'llbehappytotrytocontinuetobeoutthereandsharewithyouourexcitementforthefutureofthePerrigoCompany.Thankyouandhaveagreatday.
Operator :
Thisconcludestoday'sconference.
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