Viatris Inc. (VTRS) Q3 2013 Earnings Report, Transcript and Summary

Kris King Heather Bresch - Chief Executive Officer, Director and Member of Science & Technology Committee Rajiv Malik - President, Director and Member of Science & Technology Committee John D. Sheehan - Chief Financial Officer and Executive Vice President

Christopher T. Schott - JP Morgan Chase & Co, Research Division Marc Harold Goodman - UBS Investment Bank, Research Division Jami Rubin - Goldman Sachs Group Inc., Research Division Gregory B. Gilbert - BofA Merrill Lynch, Research Division Elliot Wilbur - Needham & Company, LLC, Research Division Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division Liav Abraham - Citigroup Inc, Research Division David G. Buck - The Buckingham Research Group Incorporated Ken Cacciatore - Cowen and Company, LLC, Research Division Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division David Risinger - Morgan Stanley, Research Division Jason M. Gerberry - Leerink Swann LLC, Research Division Timothy Chiang - CRT Capital Group LLC, Research Division

Good morning. My name is Lyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mylan Inc. Q3 2013 Financial Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Kris King, VP of Global Investor Relations. Please go ahead.

Thank you, Lyn. Good morning, everyone. Welcome to Mylan Third Quarter 2013 Earnings Call. Joining me for today's call are Mylan's Chief Executive Officer, Heather Bresch; President, Rajiv Malik; and Executive Vice President and Chief Financial Officer, John Sheehan During today's call, including the Q&A, we will be making numerous forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often may be identified by the use of words such as may, will, could, should, would, project, believe, anticipate, expect, plan, estimates, guidance, trends, forecasts, potential, intend, continue and variations of these words or comparable words. Our forward-looking statements made today include, among others, statements relating to anticipated business levels; trends in some European countries; planned launches of and anticipated exclusivity periods for new products; our ability to achieve forecasted full year results, while absorbing the impact of negative pricing pressures; expectations regarding the Agila transaction; expectations for capital expenditures; expectations for R&D, SG&A and other spending; our guidance range; future earnings; planned activities; anticipated growth; and other expectations and targets for future periods, including our expectations regarding the fourth quarter and/or for 2013 overall. 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 factors set forth under forward-looking statements in our recent earnings press release dated October 31, as well as the risk factors set forth in our reports on Form 10-K for the period ended December 31, 2012, and Form 10-Q for the period ended June 30, 2013, and in our other SEC filings. You can access our Form 10-K, Form 10-Q and other SEC filings, including our earnings press release, which we filed on Form 8-K through the SEC website at www.sec.gov, and we strongly encourage you to do so. In addition, during this call, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. It should be noted that non-GAAP measures, such as adjusted revenues, adjusted gross margin and adjusted diluted EPS, should be used only as a supplement to, not as a substitute for, or as a superior measure to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. Please refer to today's earnings press release, which is available on our website, as well as on the SEC website, as it contains detailed reconciliations of the non-GAAP financial measures we use to our third quarter results prepared in accordance with GAAP. Before I turn the call over to Heather, let me also remind you that the material in the call, with the exception of the participant questions, is the property of Mylan and cannot be recorded or rebroadcast without Mylan's expressed written permission. With that, I'll now turn the call over to Heather.

Thank you, Kris, and good morning, everyone, and thank you for joining us today. Our third quarter came in a bit stronger than anticipated, continuing to demonstrate the great strength and diversity of our global platform. We delivered adjusted diluted EPS of $0.82. We're very pleased with our performance and that we were able to maintain consistent constant currency year-over-year revenues during the quarter. I'd also note that we've delivered 2% constant currency growth for the first 9 months of the year. This is a direct reflection of the stability of our core business and strong momentum and ability to leverage our diverse platform. This strong year-over-year performance was all the more impressive given that 2012 was an unprecedented year for the industry and for Mylan in terms of new product launches, including several significant first-to-file or first-to-market opportunities. Our new product launches generated revenues of almost $1 billion last year, of which nearly 85% came from our North America Generics business alone. We also have been impacted in 2013 by some delays in regulatory approvals from the FDA. In light of coming off a very strong year, every one of our businesses grew except for North America, which performed in line with our expectations. Its year-over-year third quarter revenue declined 14%. In Europe, we grew 6% year-over-year as we continue to see the benefits of a vertically integrated platform and continued momentum around governmental efforts to increase generic utilization. Further, as we announced a few weeks ago, we believe the addition of Jacek Glinka as our European President will bring deep experience in this marketplace and will help accelerate our expansion in the region, particularly in Central and Eastern Europe and the CIS. Our APAC region delivered year-over-year growth of 13% this quarter. This was driven primarily by our ARV franchise and our Japan operations. Our collaboration with Pfizer continues to exceed our expectations, both in terms of market share and new product launches, and we look forward to continued success there as the government targets to achieve generic utilization of 60% by 2017. Specialty had a phenomenal quarter, as the top line grew more than 18% compared to last year. This was driven by EpiPen, which remains the world's #1 dispensed epinephrine auto-injector in a market that has had significant expansion with a lot of runway left. I'd also note that Specialty saw double-digit growth in performance and Altiva[ph]. We continue to expect total revenue growth of 20% or more from this segment in 2013. Despite delays in certainty launches, including Lidoderm, we fully expect 2013 to be right in line with our guidance. To this point, we are narrowing our full year EPS range to $2.80 to $2.90. We look forward to a strong finish to 2013 and to completing our pending acquisition of Agila this year. This performance is to the credit of our employees around the world, and I'd like to take the opportunity on behalf of Mylan's Board and Management team to extend my sincere appreciation for their continued dedication to our cause. Looking forward, we remain confident in the 2014 targets that we provided to you on Investor Day. This is in light of the fact that we have risk-adjusted for the launch of generic Lidoderm in the first quarter of 2014, the near-term actions that need to be taken with Agila and the exciting opportunity to launch our AB-rated Copaxone at market formation. Finally, a quick update on a couple of our other long-term growth drivers. With respect to our respiratory program, the guidelines issued by the FDA in September regarding generic Advair were right in line with our expectations. We believe this further validates that our program, which has been underway for years, is right on track, and we continue to believe we'll be the first AB-rated substitutable generic in the market. With respect to our biologics program, we look forward to launching our first product, generic Herceptin, in India. The product has been filed for regulatory approval and is expeditiously moving through the process. The rest of our biologics program, which we outlined in August, remains on track. With that, I'd like to turn the call over now to Rajiv.

Thank you, Heather, and good morning, everyone. I would like to take a few minutes to update you on the status of our pending acquisition of Agila injectable business, as well as our generic Advair and generic Copaxone programs. As you know, Strides announced that one of Agila's 8 manufacturing facilities have received a warning letter from FDA. First, let me reiterate that even with this development, we continue to expect to close the Agila acquisition in the fourth quarter of 2013 and are in final stages of completing this transaction. We are fully aware of this issue placed in the warning letter, the actions taken by Agila in response and the very detailed communications and interactions between Agila and the FDA. Based on all of this information, I think it's important to note that the warning letter has changed nothing with respect to the solid rationale we have for the transaction. We see no impact on its contributions to Mylan's long-term financial assumptions and targets. As we said when we announced this transaction in February, now more than ever, leadership is needed in this very important space, and we see an opportunity to truly distinguish Mylan as a high-quality injectables manufacturer. We see the FDA's observation with respect to Agila as a part of agency's commitment to step up its activities and standards around the globe as a result of PDUFA, rather than a particular reflection on Agila assets. We fully applaud the agency, as we have the highest respect for FDA, its mission and processes. Agila, like any other Mylan facility, will be held to Mylan's one global quality standard post closing. We remain very excited about what we will be able to do with the Agila assets as part of Mylan's platform, and we look forward to updating you again on this transaction upon closing. Now let me provide a bit more color on our generic Advair program. Recent developments and the competitor commentary further supports our optimism that we will be the first into this market in 2016. As Heather noted, the guidelines issued by FDA on September 9 regarding generic Advair were right in line with the expectations. We outlined for you during our Investor Day in August, reinforcing our belief that our program is very much on the track. Since our Investor Day and after issuance of this guidance, we had another follow-up meeting with the FDA to further discuss the development program. And we believe we have a definite path forward, and we continue to believe that we have a clear head start. We also agree with the recent comments from GSK that in addition to the finance-related hurdles, there are also significant manufacturing-related barriers and we believe we are best positioned in this area. With regards to our generic version of Copaxone. As we shared on our Investor Day, we continue to work towards launch preparedness of this very important product. With IP hurdles largely behind us, we have already produced the requisite quantity of API from an FDA-approved facility and are now in the process of building up our finished product launch quantities. Also, we are actively working with the FDA to launch this product on the day of market formation. Now let me turn the call over to John for more detail on our financials.

Thank you, Rajiv, and good morning, everyone. Today, I'm going to be referring to financial metrics that have been prepared on an adjusted basis. These are non-GAAP financial measures. I refer you back to Kris' comments at the beginning of today's call regarding our use of adjusted measures. I am pleased with our financial results for the third quarter of 2013, which were slightly above the expectations we had at the beginning of the quarter, and we remain confident that we will achieve full year results within the guidance I detailed in August during our Investor Day. This is despite now not anticipating launching generic Lidoderm until Q1 2014. In addition, we have narrowed our guidance range for adjusted diluted EPS for 2013 to $2.80 to $2.90 per share. Key highlights of our Q -- of our third quarter results include the continued strong revenue growth of our Specialty business at over 18% for the quarter, fueled by sales of EpiPen, as well as constant currency revenue growth of 18% from our Indian business, which benefited from strong sales of both API and antiretroviral finished dose form products. In addition, on an adjusted basis, we generated nearly $450 million in operating cash flow during the third quarter, bringing our 9-month total to over $700 million. Now let me walk you through the details of our financial results for the third quarter and provide an update on our capital structure, our share count, the Agila transaction financing and our liquidity position. Starting at the top of our income statement, total revenues for the quarter were $1.76 billion, a decrease of 2% on an actual currency basis when compared to last year's third quarter revenues of $1.79 billion, but essentially unchanged on a constant currency basis. On a consolidated basis, new product launches in the current quarter totaled approximately $108 million as compared to approximately $299 million in the third quarter of the prior year, a decrease of approximately 65% with our North American Generics business being most significantly impacted by this decline. New product launches in the current quarter in our North American Generics business decreased approximately 70% to $81 million versus $258 million in the prior year. As you will recall, the third quarter of last year included new product revenues from the 2012 launches of Valsartan, HCTZ, pioglitazone and Escitalopram. As a result of the lower level of new product revenues, North American revenues declined 14% to $707 million in the third quarter of 2013 when compared to the third quarter of 2012. Within our Generics segment, third-party revenues were $1.4 billion, a slight decrease on a constant currency basis when compared to the prior year. Because of the strength and diversity of our existing business, our revenues remained stable despite the unprecedented level of new products launched in 2012. We expect that revenues from new products will have a similar impact on our consolidated and North American fourth quarter year-over-year revenue growth. Turning to our other regions within our Generics segment. Constant currency third-party revenues in EMEA increased $21 million or 6% in the current quarter. We continue to be encouraged by our strong growth in France and Italy, principally as a result of new product revenues and volume growth. For the first 9 months of 2013, revenues in EMEA grew 10% from the prior year on a constant currency basis. And for the full year of 2013, we continue to expect double-digit constant currency revenue growth in EMEA. In addition, constant currency third-party revenue in the APAC region increased $44 million or 13% and as a result of double-digit growth, both by our Indian and Japanese operations. In Japan, we continue to benefit from our partnership with Pfizer. Within our Specialty segment, third-party revenues increased $55 million or 18% compared to the third quarter of the prior year. EpiPen sales grew nearly 20% in the current quarter, and we continue to expect EpiPen sales to grow more than 20% for the full year. We remain confident in our ability to continue to generate growth from our EpiPen franchise and to maintain our leadership position in the market. In addition to the growth in EpiPen sales, our performance product grew by more than 20% in the current quarter on an increased price and volume. For the first 9 months of 2013, total revenues increased to approximately $5.1 billion as compared to $5.07 billion for the first 9 months of 2012, an increase of 2% on a constant currency basis. As discussed during our Investor Day, weakness in certain foreign currencies relative to the U.S. dollar, specifically the Indian rupee, the Australian dollar and the Japanese yen, have been having a negative impact on our revenues as expressed in U.S. dollars. Accordingly, we expect that our total revenues for 2013 on a constant currency basis will be at the lower end of our guidance range of $7 billion to $7.4 billion, principally due to the foreign currency translation impact. Looking at our operating profitability measures, even with the decline in the level of new product revenues within our North American Generics business, adjusted gross margins for the third quarter of 2013 was a strong 51%, down only 1 percentage point from the same prior year period. Our margins continue to be favorably impacted by the growth in our Specialty business and the optimization of cost and efficiency across our global platform. For the 9 months ended September 30, 2013, adjusted gross margins remained constant at approximately 50% when compared to the prior year, despite the significantly lower contribution from new products in 2013. For the full year, we currently expect to be near the upper end of our gross margin guidance range of 49% to 51% and expect our fourth quarter gross margin to be above the top end of our guidance range as a result of an improved product mix within our Generics segment and continued customer initiatives. Adjusted operating income was $462 million for the third quarter of 2013, a 10% decrease compared to the prior year. This is primarily the result of a lower gross profit in the current year and increased research and development expenses, which were up approximately 8% from the prior year. Third quarter R&D expense on an adjusted basis was $113 million or approximately 6.4% of total revenues. As planned, we continue to invest a significant amount in our respiratory and biologics platforms, which accounts for the majority of the increase from the prior year. Third quarter selling, general and administrative cost, also on an adjusted basis, were approximately $333 million or approximately 19% of total revenues, at the midpoint of our full year guidance range of 18% to 20%. SG&A increased only 3% from the prior year, primarily due to increased marketing cost incurred within the Specialty segment. For the 9-month period, adjusted R&D expense was $326 million, up 18% over the prior year. As a percentage of our revenues, year-to-date adjusted R&D expense for 2013 is 6.4%. Our guidance range for adjusted R&D expense for the full year remains at between 6% and 7% of total revenues, and we continue to expect to be at the upper end of the range for the full year, with the fourth quarter being our strongest spending quarter of the year. SG&A expense on an adjusted basis for the 9-month period was $954 million, a decrease of 1% from the prior year period and within our full year guidance range of 18% to 20% of total revenues. A key factor driving the decrease in SG&A expense in the current year is the reduced sales and marketing cost in Japan as a result of our collaboration with Pfizer. We currently expect to be nearer to midpoint of our guidance range for SG&A for the full year. Adjusted EBITDA for the quarter was $534 million, a decrease of 6% when compared to the prior year, principally as a result of a lower revenue -- lower level of new product launches. And adjusted EBITDA for the 9 months ended September 30, 2013, was $1.44 billion, a slight increase when compared to the prior year. We continue to forecast adjusted EBITDA to be between $1.9 billion and $2.1 billion for the full year. Moving on to our consolidated nonoperating financial metrics. Adjusted interest expense for the third quarter of 2013 was $56 million. We continue to benefit from low short-term interest rates. As of September 30, the average rate on all of our outstanding borrowings was slightly above 4%. We continue to use interest rate swaps in order to target a long-term 70-30 fixed-to-floating debt portfolio, which we believe is an optimal ratio. Adjusted interest expense for the 9-month period was $184 million, essentially unchanged when compared to the comparable prior year period, despite the notional value of our debt increasing by almost $400 million from the year-ago level. As a result of the anticipated financing on the Agila transaction, we currently anticipate our Q4 adjusted interest expense to increase by approximately $10 million from the third quarter. As discussed at our Investor Day, as part of our ongoing effort to lower our tax rate, during the third quarter, we adjusted our annual effective tax rate to 25% as compared to 26% in the prior year. As a result, the effective tax rate in the current quarter was approximately 23%, and we currently expect to maintain our 25% annual rate into 2014. Third quarter adjusted net income was $324 million or $0.82 per share, almost flat as compared to our Q3 2012 adjusted diluted EPS of $0.83 and above the upper end of our expectations from the beginning of the quarter. For the 9 months, adjusted net income was $832 million or $2.11 per share. Our Q3 results were achieved despite an 8.5 million share increase from the sequential quarter in our fully diluted share count. This higher share count lowered our Q3 2013 adjusted EPS by approximately $0.02. The majority of this increase in share count was the result of dilution from the outstanding warrant on our cash convertible notes. Under our cash convertible notes, we have approximately $43 million warrants outstanding, with the majority of the warrants having a strike price of $30. For every dollar that our average stock price increases above $30, the dilutive impact of the warrants is approximately 1 million shares. As a reference point, our average share price for the third quarter was $35.20. Our strong cash flows continue to enhance our financial flexibility, providing us with a number of levers to create shareholder value, including returning cash to shareholders. As we announced earlier today, our Board of Directors has approved a share repurchase plan that will allow us to repurchase up to $500 million of our equity. This share repurchase plan will be financed with our available cash on hand, available revolving borrowings or future debt issuances. We have narrowed our guidance range for adjusted diluted EPS for 2013 to $2.80 to $2.90 per share. This guidance range fully incorporates further anticipated share dilution, as well as the financing costs from the Agila acquisition, which, together, amount to approximately $0.04 per share. This range also excludes any positive contribution from a positive Lidoderm launch -- possible Lidoderm launch in 2013. We remain confident in our financial targets for 2014, specifically anticipated 12% top line growth and 19% bottom line growth. Turning to our cash flow metrics. Year-to-date cash flow from operations on an adjusted basis was approximately $727 million. Our GAAP cash flow from operations for the year-to-date period was approximately $689 million, leaving us with unrestricted cash and cash equivalents totaling $365 million. We are still forecasting our full year 2013 adjusted operating cash flow to be within our guidance range of $1 billion to $1.2 billion. At the end of the third quarter, our gross notional debt-to-EBITDA leverage ratio was 2.8:1. Based upon the anticipated timing of the closing of Agila transaction and our share repurchase program, we expect our gross notional debt-to-EBITDA leverage ratio at the end of the year to be approximately 3.5:1. We remain committed to our 3:1 long-term growth leverage target. And when our leverage target -- leverage exceeds that target, we remain committed to deleveraging within an 18-month period. Taking into account the closing of the Agila transaction and the share repurchase program announced today, we will end 2013 with financial flexibility in excess of $1.5 billion, which includes the EBITDA from potential expansion opportunities. Capital spending for the 9 months ended September 30, 2013, was $239 million as compared to $160 million in the prior year. The increase as compared to 2012 is the result of expenditures to expand our global operating platform, including capital investments in our strategic growth drivers. We expect full year capital expenditures to be approximately $350 million and within our guidance range of $300 million to $400 million. Turning to our planned acquisition of Agila. As we announced in the first quarter, we entered into forward starting interest rate swaps for a significant portion of the overall financing for the Agila transaction. In addition, during the third quarter, we executed an additional $930 million of notional value forward starting swaps to fully cover the expected financing for the transaction. Based upon current market conditions and our forward starting swaps, we now expect that we will finance the Agila transaction at an effective weighted average interest rate of approximately 4%, assuming no significant deterioration of Mylan's credit spreads. To summarize, our third quarter was strong and a bit above what we had anticipated. We look forward to a strong finish to 2013 and are confident in our long-term targets we outlined in our Investor Day in August. In conjunction with our fourth quarter call, we will provide detailed 2014 financial guidance that will reflect recent developments and our most up-to-date outlook. That concludes my remarks, and I'll turn the call over to the operator for Q&A. Lyn?

[Operator Instructions] Your first question comes from the line of Chris Schott with JPMorgan. Christopher T. Schott - JP Morgan Chase & Co, Research Division: Just actually just one quick one and then one follow-up. First, on Agila, I know -- I appreciate the comments you made on the call. I know there obviously has been some controversy on the asset in light of the warning letter. Can you just elaborate a little bit more? In your view, how difficult is it going to be to address the warning letter at this facility? How long is it going to take? And do you think that has implications on your 2014 growth targets? My quick follow-up here is you've mentioned now and I think the last 2 press releases that there's been some of the -- U.S. pipeline opportunities have been delayed. Can you give us a little more color on what gives you confidence that you're going to receive approvals for these in 2013, or that they could actually be delayed even further?

Okay. Thanks, Chris. Maybe I'll touch on Agila and then if Rajiv wants to add any more color on it. I think as we spoke about at our Investor Day, I think there's a bucket of issues and problems. And certainly, anything and everything that we have found with Agila falls in that issue category, that we've been working very close with them on, getting our arms around it. And look, nothing takes away from the strategic opportunity and growth that we see Agila adding over the longer term. And I think, as I mentioned in my opening remarks and wanting to stress the point that we have risk-adjusted that for 2014. So like I said, we see the growth opportunity extremely meaningful and think that we absolutely have our arms around in understanding the issues that will need to be fixed over 2014.

And Chris, yes, we are aware of the issues raised by agency in the warning letter. We are also very close to Agila's response. Agila is in very close interaction, positive engagement with the FDA. And as nothing can be said about the duration, but this is not something like the Antares [indiscernible] facility. These issues are very manageable and will be placed in a much shorter time as compared to the other warning letters we got out there.

And as far as your question on timing with the FDA, here's what I'd say. As GDUFA has -- they're beginning to implement GDUFA. As with any significant new piece of legislation and law, we're going through a transition period right now with the FDA. I think when you look at the Office of Generic Drugs now becoming a super office and having the same standing as the Office of New Drugs with the agency, what they're doing to hire and bring on staff to meet the commitment to get ANDA approval times from today 34-month average down to 10, there's obviously -- that doesn't happen overnight. So I think in the -- as you look at some of the particulars that are changing, for instance, wanting to get a complete response versus getting commentary back and forth during your ANDA application, moving towards the 1 cycle review, we have been working very closely, obviously, as; one, the author of the legislation, but to now the interpretation and how that log is executed obviously with the FDA. We've been working very closely with the agency. And I think the only thing I was trying to reference or underscore is yes, we have seen some delays as those transitions happen, but they're just timing issues. So -- which is why, again, we risk-adjusted some of the products such as the Lidoderm from 2013 to 2014, but absolutely have confidence in our overall approvals of these products.

Your next question comes from the line of Marc Goodman with UBS.

A couple of questions. First, on the generic Advair, can you just remind us, have you done the PK study yet? I couldn't remember if you said you were about to start the study at the Analyst Day, or if you've completed it. Second, I was just curious why have you pushed out Lidoderm launch from this year as a potential from happening. Is it just conversations with FDA that you've learned something new? And third, if you could just get into a little bit more detail [Technical Difficulty]

I think -- operator, I think he got cut off. Well, why don't we answer it? We'll speak to the first 2. Rajiv, do you want to take Advair?

Yes. On Advair, I think we have done several product studies to date and got very different inputs. And we are now about to kickstart our -- just kick started with our [indiscernible] study.

And as far as Lidoderm, look, I would say that while there is still a potential to get Lidoderm this year, we just believe from what we can see and the visibility we have and the back and forth that we've had tracking our application through the FDA process, which is why we risk-adjusted end of Q1 of '14. But like I said, I'd still say there's a potential. But from a financial perspective, we have pushed it into 2014. But there’s -- we don't -- there's no issues around application. Again, this just falls in the bucket of timing.

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

Gentlemen, just because there is a lot of investor angst over what does appear to be a delay in timing. Just the question related to the warning letter. Are you waiting for FDA to resolve the warning letter to close the deal? Or if not, do you feel you will get reassurances from FDA that the warning letter won't lead to a broader systemic problem like an import ban? If you can just provide some color around that? And then just my second question, again, related to the timing of generic Advair, your competitors Actavis and Teva said they didn't expect the first generic Advair to reach the market until 2018, in large part, because of the typical PDUFA time line, so if you could address that as well.

I can get started with the second one on Advair. And Actavis and Teva will comment upon the program what they know about this, and we will be talking based on our interaction and active engagement with FDA. So the time line is what time line is, in this case, it's the only thing that the FDA is transitioning into GDUFA. FDA is very actively engaged upfront rather than after submission of the package and the submission of the signs, and that's why FDA is actually engaged because they know the complexity of the product, the complexity of the sign and the ownership there is going to help regarding GDUFA time lines. So we feel very confident of our projected time lines of filing in 2015 and approval of the product in 2015. As for Agila, again, as I mentioned, we have been very close to the issues, which have been raised, how are they being addressed, how positively Agila has responded and with all communications with the FDA, and we believe the possibility of the import ban is very unlikely. And taking all this into consideration, risk adjusting various scenarios, we are marching towards the closure of this deal in the fourth quarter.

[Operator Instructions] Your next question comes from the line of Greg Gilbert with Bank of America.

John, how would you encourage investors to quantify or attempt to quantify the pricing pressure versus the volume lift from products sold to Walgreens' Alliance Boots? And do you think that sort of construct would hold true for Celesio, McKesson? And then how should we think about the pace of share buyback? Can you share any color there without giving away any secrets?

I'll let John get more into the details. But I guess the one thing that I'd like to point out, Greg, as they've continued to say, consolidation in this industry is our friend, from our customers' perspective. Because as you can imagine, as they become larger and now, in fact, global, their need from a product volume perspective and a reliable supply chain has never been higher. We're seeing that certainly play out with Walgreens and believe that, that would continue to play out as other customers, perhaps, become global as well. So -- and again, we just feel that Mylan is probably better positioned than anybody on our vertically integrated global supply chain. John?

Yes, I guess, Greg, what I would say is that -- and I had said in other public forums is that we will absolutely provide our customers with price in exchange for volume and that, that creates a win-win for both parties, absolute increase in profitability for Mylan and cost savings for the customer. And it creates, quite honestly, stability, stability in terms of volumes for Mylan and stability for the customer. And I wouldn't expect that you will see any material impact on our gross margins as a result of that. In terms of the -- your follow-up question on the share repurchase program, we haven't set a particular timeframe out for when the share repurchase program would be executed by -- the board has authorized the company to execute that as it deems appropriate.

Your next question comes from the line of Elliot Wilbur with Needham & Company. Elliot Wilbur - Needham & Company, LLC, Research Division: A question, I guess, for Heather. Heather, can you talk to me a little bit about your expectations around Copaxone substitution scenarios, assuming that you do get approval and are at market formation and maybe, potentially, or even first-to-market and have some sort of exclusivity? There still seems to be the notion out there that there's going to be resistance to substitution, and you're looking at a relatively limited impact kind of in the 30% to 40% range. So I don't know if you share that viewpoint or not, but maybe you can talk a little bit about your capacity to supply the market and whether or not you think we're going to see relatively limited substitution until you see a multiplayer market?

Okay, thank you. So I guess let me start here, we have continued to state and certainly believe and continue to obviously have a lot of dialogue with the FDA on this very important product that we absolutely will have an AB-rated substitutable Copaxone. With that being said, if you'll remember on Investor Day, I pointed out that we've been conservative on what we consider to be -- not look like a typical generic from a utilization perspective right out of the gate. I do think it will be a little bit of a slower build because, as you know, there's a lot of package and services that are around this product from a Specialty pharmacy perspective and an ongoing maintenance with the patient. So I think that we've been very responsible about how we've looked at this marketplace, and I think that it's something that certainly -- a product like this, the value is not just in 180 days. This will be -- this is a very meaningful product, and it will have meaningful contribution to us over the years.

Your next question -- okay, go ahead.

I'm sorry, just going to say from a capacity perspective, we absolutely feel that we have plenty to fulfill the market needs around this product. Thank you.

Your next question comes from the line of Andrew Finkelstein with Susquehanna Financial.

Can you talk a little bit about upcoming launches that you are expecting? I think the Veladot [ph] is one of them, but other things that you're looking forward to the new product contribution next year, what else we should be looking for. And then also on EpiPen, commercially if you can talk at all about how the competitive environment is shaping up for next year? We saw you and your competitor take up price increase relatively recently, your views on that continuing and how the formulary landscape is shaping up for next year.

Sure. As far as product launches go, we have been saying now, I think, for multiple quarters and years that it's just the sheer volume of the launches that we continue to see globally, that's a real driver to that. Obviously, in the United States, as you pointed out, 2012 was a very meaningful year as far as new product launches. So with that being said, the diversity around our true global platform and the voluminous amount of launches globally is what allowed us to produce the results we have this year, and we see that continuing. So we've gotten to the point, it's not about any one product, it's really about our portfolio of products and those launches. And new launches will continue to be a significant driver for us around the globe for years to come. As far as EpiPen goes, we had a phenomenal quarter. I couldn't be happier with the results that EpiPen continues to produce, and the return on our investment of education and awareness and direct-to-consumer advertising has very much paid off. And as I said, we see a lot of runway room left. There's still a fairly small number of at-risk patients for anaphylaxis carrying an EpiPen, and we believe that our message is being heard. And as far as the competition landscape goes, as we've said all along, that shared voice in a market like this that shows this much reaction to education and awareness is beneficial, obviously, for the patient. And we believe we'll continue to get our very much disproportionate share around this marketplace, again, for years to come. And I think as far as pricing, our formulary position, we are the #1 in formulary position with all the major formularies and don't see any of that changing next year.

Your next question comes from the line of Liav Abraham with Citi.

Just a couple of follow-up question on Agila. Given your interactions with Agila thus far and some of the comments that we've seen in the warning letter, can you just confirm that you do not view this as a systemic issue within the company pertaining to the other manufacturing plants? And do you see any risk of increased FDA scrutiny at Agila's other manufacturing plants?

First of all, Agila has 5 facilities in India, which have been FDA approved, and all 5 have gone through FDA inspection over the last few months. And while one of these facility we received a warning letter for, the other one, they received no -- 0 483, 1 483 and there's one with 4 483s. So it's not a systemic issue. The fact, within the same campus, they have their own quality facility with the 0 483 will tell you it's not a systemic issue. It's an issue, which is contained to this facility and is being addressed, very comprehensive and in a strategic way. So it will -- first of all, safeguard and shorten the quality issues related with the product and provide a long-term sustainable quality infrastructure and structure around those all other facilities across the globe.

Your next question comes from the line of David Buck with Buckingham Research.

Quick ones. For the EMEA business, the constant currency grew within the third quarter. It looks like it slowed a little bit to 6% versus what have been a 13% growth rate in the second quarter. Is there anything to look at that drove that? And can you talk about the outlook for growth in 2014? What's assumed for that? And then secondly, just a follow-up on Copaxone, are we at the point now that the FDA is taking the clinical trial potential off the table? I think I know the answer that you'll give, but there's commentary from your competitor that there's new information on the differences between the brand and generics. And how do you think the FDA will react to that?

So I'll start with your question. Look, what we see in Europe is actually what we anticipated. And as I think I called out in the Investor Day, the convention in France, which was driving higher generic utilization, we had said would not be -- should not be considered a run rate. There was going to be definitely a jump start as they started that at the beginning of the year, and we see that now kind of leveling off. So we absolutely still see growth continuing for the rest of this year, as well as next year. We haven't yet given guidance, and we'll be doing that obviously at our year end and when we give our 2014 guidance, specifically on growth rates. But we absolutely see the growth continuing and our momentum around generic utilization there continuing.

And just a reminder that in my comments, I did indicate that we continued to see double-digit growth for EMEA for 2013.

And on Copaxone?

And regarding Copaxone, I think as far as our application in FDA has been concerned, their clinical trials have never been on the table. We have been engaged with the FDA for over the last 4 years now, various interactions, strict analysis, lots of phase meetings. And FDA is using several other tools available to sign to prove that it's working. Clinical trial has never been a subject matter of discussion.

Your next question comes from the line of Ken Cacciatore with Cowen and Company.

Just wanted to follow-up on Copaxone as well. I think you've confirmed in the past that it's not the natural formulation you're using, but just wondering as your competitor keeps on referring to having access to looking at different formulations, would they have access to your current go-to market product via litigation, so that they could've analyzed it? That's the first question. Then just a second question on the brand assets that are out there, is there any pressure? Are you feeling any pressure to pivot, or are you looking more aggressively at potentially brand acquisitions? And if so, can you kind of give us a sense of that strategy?

Yes. I mean, I guess, let me start on the Copaxone.

Net goals, you said, but -- yes.

On a litigation -- I'm sorry, the litigation part. Here's what I'd say. Obviously, we think that the legal issues have played themselves out in the United States. I think we've been well on record talking about how confident we are in our formulation at being AB-rated and the ongoing dialogue we're having with FDA in a very positive sense and very much expect to be at the market at patent expiration. So that's all I'd have to say really on the Copaxone front. We feel very positive and confident about our application and where we stand both legally and with the FDA.

Your next question comes from the line -- okay, I'm sorry.

I'm sorry, [indiscernible] about acquisition, just quickly on that. Look, I think how we're using our capital, whether it's by share buyback, we see great opportunity. Obviously, we feel like there's not a better opportunity at the moment, quite frankly, than in our in-stock given the long-term opportunities that we have in front of us. And as far as the acquisitions go, I think we've said, we'll continue to look at everything as long as it's complementary and a strategic fit and within the parameters that we've laid out again on Investor Day. So we continue to look at everything that's out there that would be a complement to our current footprint.

Your next question comes from the line of Ronny Gal with Bernstein. Aaron Gal - Sanford C. Bernstein & Co., LLC., Research Division: I've got 2. First, just a close up on Agila, which is -- you said something interesting. You said that actually the FDA inspected all of the Agila facilities, and you now always stand in all of them. Can you just quantify for us just, actually in your view, how long it will take to fix this? Roughly, how much it would cost? Would you exclude this cost? And it would include, of course -- in fact, are you paying it, or is it the former owners of Agila, which are responsible for picking the tab? And second, regarding the respiratory franchise. Now that you've got guidance on Advair, presumably it applies to a variety of other respiratory products, can you talk to us a little bit about your plans for other respiratory products and a little bit about the capacity you're putting together? If we think about you as a respiratory player beyond Advair, what should -- would we be thinking about?

So on -- first, on Agila, as I said, these issues are manageable. They are nowhere close to another set of warning letters, which involved having engagement of FDA for the long time. We see these issues getting closed rather quickly and sooner than taking that sort of user time, which it takes to close a warning letter. Second, we have -- as we mentioned, that we have taken various scenario and risk-adjusted various aspects, and we'll be able to share with you all these details once we close this transaction, or soon after the close of the transaction. On using the Advair platform, absolutely. As we mentioned that Seretide, which was not an Advair product, but another, let's say, MDA product, and also we have now already in the pipeline some more products. And I think once we reach a stage that we are in a position to share with you, we'll be very excited to share with you the pipeline.

Your next question comes from the line of David Risinger with Morgan Stanley.

So my question relates to just going back to some of the comments on August 1, and I'm just hoping for some updates, please. First, with respect to Agila, obviously, that's been discussed a lot. But August 1, you had mentioned that you didn't see any manufacturing issues impacting approvals. Could you just talk about how you're now thinking about Agila approvals in 2014, and whether your expectations have changed for Agila launches in '14? And then with respect to the European region, I think you had mentioned you expected it to grow mid-teens for the full year. Do you have an update there? And then finally, with respect to the 19% year-over-year EPS growth target for '14 that you said in the first, is that still unchanged? Well, I guess, it's unchanged. But does that include the new stock buyback now that you've announced that?

So look, as far as Agila goes, I think we've said at about every way we can say that we have taken all of this into consideration with our 2014 guidance and our target out there and reiterated that confidently today about what we see for 2014. So like I said, we've taken all that into consideration, and then I want to continue to reinforce the longer-term opportunity that we absolutely can see that growth continuing in 2015 and beyond. As far as Europe, I think we just reiterated that we see double-digit growth for this year. And 2014?

Right. We -- I said that we would provide detailed guidance with respect to 2014 in our fourth quarter earnings call, David. And I think there are lots of positives and negatives that happen every day and so whether it be risk adjustment on product launches or share repurchase at all. And so I think that we'll provide detailed guidance. But just to reiterate, again, we are very confident in the 12% top line, 19% bottom line guidance that we -- sorry, targets that we provided previously.

Your next question comes from the line of Jason Gerberry with Leerink Swann.

Just another Advair question, just on timing then. When should we expect you to start your clinical endpoint study? Would that be done in parallel with your PK study, or after the PK study? And just trying to get a sense of expectations for when investors might see the clinical endpoint study get posted on clinicaltrials.gov.

So look, maybe just one thing to reiterate around our Advair franchise and development. I would like to maybe just underscore that we believe we're years ahead of the other people that have been out there talking about their program. So as Rajiv mentioned earlier, we've had constant dialogue with the FDA and, like I said, believe that we're years ahead. So I don't want to speak specifically. If there's anything, Rajiv, you want to weigh in on the clinical front?

No, and I think, as we've said, we are absolutely on track from the time line perspective for filing in the first half of 2015.

So operator and for everybody on the call, we've got this busy day today in terms of earnings announcements, and it's 11:00. So we'll take one more call -- question and then let folks go on to the next call that's been scheduled publicly.

Your final question comes from the line of Tim Chiang with CRT Capital.

So Heather and Rajiv, I mean, looking into 2014, to get to this guidance that you guys have provided, do you think that you're pretty comfortable with Lidoderm approval by the first quarter? I mean, I know you said that it's risk-adjusted. Is there any sort of detail you could provide about your confidence level at this point with Lidoderm?

So as I mentioned, yes, we risk-adjusted it, but are very confident in the approval. This was definitely much more around timing and some of the things that I pointed out with the FDA. So we absolutely are confident in our product and the approval, and I look forward to -- I think it's going to be, again, another one of those high-barrier-to-entry products that will be -- bring a lot of value over the years, not just in the first 180 days. So thank you very much, and we look forward to talking with you guys soon.

This concludes today's conference call. You may now disconnect.