Viatris Inc. (VTRS) Q1 2014 Earnings Report, Transcript and Summary

Kris King - Vice President, Global Investor Relations 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

Douglas D. Tsao - Barclays Capital, Research Division Ken Cacciatore - Cowen and Company, LLC, Research Division Jami Rubin - Goldman Sachs Group Inc., Research Division Christopher T. Schott - JP Morgan Chase & Co, Research Division Marc Harold Goodman - UBS Investment Bank, Research Division Sumant S. Kulkarni - BofA Merrill Lynch, Research Division Randall S. Stanicky - RBC Capital Markets, LLC, Research Division David Risinger - Morgan Stanley, Research Division Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division David G. Buck - The Buckingham Research Group Incorporated Elliot Wilbur - Needham & Company, LLC, Research Division Liav Abraham - Citigroup Inc, Research Division Timothy Chiang - CRT Capital Group LLC, Research Division Jason M. Gerberry - Leerink Swann LLC, Research Division

Good day, ladies and gentlemen, and welcome to the Mylan First Quarter 2014 Financial Results. [Operator Instructions] I would now like to introduce your host for today's program, Kris King. You may begin.

Thank you, Andrew. Good morning, everyone. Welcome to Mylan's First Quarter 2014 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, we will be making forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, our ability to identify, affect and integrate complementary or strategic acquisitions of other companies, products or assets; our expected or targeted future financial and operating performance, results, metrics and plans, and expectations related thereto; the ability to obtain regulatory approvals and planned launches of and anticipated exclusivity periods for new products. Because forward-looking statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, the impact of competition; situations where we manufacture, market, and/or sell products, notwithstanding unresolved allegations of patent infringement; any regulatory, legal or other impediments to our ability to bring new products to market; and those set forth under forward-looking statements in today's earnings release; and the risk factors set forth in our Form 10-K for the period ended December 31, 2013. We undertake no obligation to update our forward-looking statements, whether as a result of new information, future events or otherwise. Today's call should be listened to and considered in its entirety and understood this speaks only as of today's date. In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. These non-GAAP measures are presented in order to supplement your understanding and assessment of our financial performance. Please refer to today's earnings release, which is available on our website, as well as the SEC website, as it contains detailed reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure. 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. An archived copy of today's call will be available on our website later today and will remain available for a reasonable amount of time. With that, I'll now turn the call over to Heather.

Thanks, Kris, and good morning, everyone, and thank you for joining us. Mylan's performance during the first quarter marked a great start to the year. On the top line, we delivered revenues of $1.72 billion, a year-over-year increase of 7% on a constant currency basis. On the bottom line, we delivered $0.66 per adjusted diluted share, a year-over-year increase of 6% slightly exceeding our expectations. We delivered this strong performance, despite ongoing regulatory delays, once again leveraging our current assets and strong demand for our products around the globe. Mylan's ability to consistently deliver strong results reflects the unwavering dedication of our employees around the world. And on behalf of the board and our entire management team, I'd like to thank them and congratulate them on a job well done. Now I'd like to walk you through the commercial performance of our businesses. In our Generics segment, we delivered revenues of $1.51 billion, a 10% increase on a constant currency basis compared to the first quarter of 2013. In our North American region, revenues totaled $782 million, up 7% year-over-year. As stated earlier, the strong performance was the result of our ability to continue optimizing our existing assets, thereby offsetting continued regulatory delays at the FDA. With that said, we're extremely pleased with our most recent delayed approval of XULANE, which we launched last month. This complex product is a first-to-market, generic contraceptive transdermal, for which Mylan was the only known filer. In Europe, we delivered $356 million in revenues during the first quarter, a constant currency decline of 2% that was driven largely by a comparatively mild winter season for flu and other seasonal infection. Even so, we continue to see encouraging trends across the region. Our sales growth outpaced market growth in our key European markets. And in addition, we continue to anticipate year-over-year growth in Europe in 2014. In our Rest of World region, revenues totaled $370 million, an increase of nearly 27% on a constant currency basis. This outstanding performance was fueled by India, which serves as both our operational hub and the engine behind our global antiretroviral franchise. During the first quarter, we also launched a critical care franchise in India, our fourth commercial line, as well as Hertraz, our first biologic product. Our business in Japan continued to deliver strong performance during the quarter, which marked the beginning of the second year of our collaboration with Pfizer. In our Specialty segment, first quarter revenues totaled $195 million, an 8% decline versus a year ago. The decrease was predominantly due to a reduction of inventory at the wholesale level. We have regained market share and also expect double-digit growth in 2014, both for the market and for EpiPen and remain on track for it to be -- for it to become our first billion-dollar product. As far as our long-awaited approval of generic naproxen is concerned, we remain in communication with the agency. And at this juncture, we are unaware of any outstanding scientific issues. However, there are continued processes occurring within the FDA that we believe could impact the earliest market formation date of patent expiry of May 24. With that said, we believe that the prudent course is to not include it in our second quarter guidance, and we continue to look forward to being able to launch this very important first generic product for multiple sclerosis patients at market formation. We are reaffirming our full year guidance ranges, including adjusted diluted EPS in the range of $3.25 to $3.60. As we stated before, this is irrespective of any one approval. With respect to M&A, as we have stated in the past, we continue to be very active in exploring a number of potential transactions. And we remain confident that we will be in a position to execute on a substantial one by year end. With that, I look forward to answering your questions and to seeing you during our upcoming Investor Day this summer. I'll now turn the call over to Rajiv.

Thank you, Heather, and good morning, everyone. As Heather said, we have had a great start to the year, and we expect that momentum to continue and increase throughout the rest of 2014. This morning, I would like to provide all of you with an update on where we stand with several key products and our strategic growth drivers. As you know well, we are waiting on several important approvals that are in the pipeline at the FDA. We are directly and actively engaged with FDA on a regular basis to ensure we receive copies of [ph] approvals as soon as possible. While Heather has already updated you on generic naproxen, we've continued to expect approvals for several other key launches, including our generic version of Lidoderm, Vivelle-Dot and XELODA. As I've stated previously, we believe it's simply a matter of timing. Also, as Heather mentioned, we had a successful approval and launch of XULANE, the first generic version of contraceptive ORTHO EVRA transdermal patch. Related to our respiratory platform, we were pleased to announce our global licensing agreement with Prosonix as it represents another development milestone for this franchise. We look forward to a successful collaboration with Prosonix in coming years as we bring to market generic version of Flixotide and Flovent around the world for the treatment of asthma. Our development program for generic Advair continues to progress as expected, and we will provide you with an update on our core respiratory franchise at our upcoming Investor Day this summer. On our injectables platform, I'm very pleased to report that since we last spoke, we have received 3 more close-out reports from the FDA pertaining to our Agila India sites. This leaves us with only one open FDA inspection at the Agila India site. And we continue to make good progress here. I'm very proud of the team that has been working to resolve these specific issues. And I would like to thank each and every one of them for their diligent work and passionate dedication. Outside of the remediation activity, we remain on track to launch 127 injectable products globally this year. Also, in India, Hertraz continues to do very well and continues to meet our expectations as projected. Hertraz, as you will recall, is Mylan's first generic quality [ph] product, as well as India's first generic automated trastuzumab. And with that, I look forward to answering your questions. And I will hand the call to John, who will provide you with the details on our financials. John?

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'd like to begin today by walking you through our first quarter financial results, which, as Heather indicated, was a great start to what we believe will be another strong year for our company. I'll also provide an update on our capital structure and our liquidity position. Our Q1 results were slightly above our expectations. The growth in adjusted diluted EPS was achieved through constant currency revenue growth of over 40% by our Indian operations, specifically within our antiretrovirals business, and strong result at our North American Generics business even despite of the delays in product approvals in the United States. Total revenues for the quarter were $1.7 billion, an increase of approximately 5% when compared to the first quarter revenues of $1.6 billion in the prior year or approximately 7% on a constant currency basis. We continue to expect that our total revenues for 2014 will be within our previously disclosed guidance range of $7.8 billion to $8.2 billion. Looking at our operating profitability measures. Adjusted gross margin for the first quarter of 2014 was a very strong 50%, up over 100 basis points from the same prior year period. Our strong margins are primarily the result of an improved mix within our diverse product portfolio of our North American Generics business. Additionally, our margins continue to benefit from the efficiencies of our vertically integrated platform. We continue to expect our full year 2014 gross margins will be between 51% and 53%, with Q2 being very similar to Q1's margins, before increasing in the second half of 2014. Adjusted operating income was $396 million for the first quarter of 2014, up slightly from the prior year, primarily a result of the improvements in gross margin. R&D expense on an adjusted basis was $117 million or approximately 7% of total revenues. Our guidance range for R&D expense for the full year is between 7% and 8% of total revenues. The timing of certain R&D spending principally amounts related to our biologics and respiratory platform is expected to occur in later periods of the current year, with no impact on the timing of the programs themselves. And we continue to expect that the full year spend will be within our guidance range and that the spending in the second quarter will be at the upper end of our guidance range. At the same time, SG&A, also on an adjusted basis, was $352 million or approximately 20.5% of total revenues, slightly above our full year guidance range of 18% to 20%. However, on a sequential basis, SG&A expense was flat when compared to Q4 of 2013, and we continue to expect to be within the guidance range for our SG&A for the full year. Adjusted EBITDA for the 3 months ended March 31, 2014, was $460 million, an increase of 4% when compared to the prior year and remains forecasted to be between $2.2 billion and $2.4 billion for the full year. Adjusted interest expense for the first quarter of 2014 was $63 million, essentially flat when compared to the prior year. We continue to benefit from low short-term interest rates, which have offset the increase in interest expense from higher long-term debt. As of March 31, 2014, the average rate on all of our outstanding borrowings was slightly below 4%. First quarter adjusted net income was $260 million or $0.66 per share, a 6% increase from our Q1 2013 adjusted diluted EPS of $0.62 per share and slightly above our expectations. Our guidance range for adjusted diluted EPS for 2014 remains at $3.25 to $3.60 per share, irrespective of any one product approval. Turning to our cash flow and liquidity metrics. Cash flow from operations on an adjusted basis was $286 million. Our debt cash flow from operations for the current quarter was approximately $268 million, leaving us with unrestricted cash and cash equivalents totaling $243 million. The first quarter is historically the heaviest in terms of the usage of cash as a result of this timing of certain payments, including taxes, interest and incentive compensation. And we are still forecasting our full year 2014 adjusted operating cash flow to be within our guidance range of $1.2 billion to $1.4 billion. First quarter capital spending was $72 million, as we continue to invest in our business. And we expect full year capital expenditures to be within our guidance range of $350 million to $450 million. At the end of the quarter, our gross-to-EBITDA leverage ratio is approximately 3.4:1. We continue to have ample borrowing capacity and financial flexibility and remain committed to our 3:1 long-term gross leverage ratio target, which represents an investment-grade credit profile. Further, we remain committed to our stated M&A parameters that any transaction would be accretive to earnings and maintain our long-term low gross leverage target. To summarize, our first quarter provided a strong start to 2014 and provides yet another example of our ability to manage our business through a variety of industry and market headwinds, while producing top and bottom line growth for our shareholders. With respect to the second quarter of 2014, we expect adjusted diluted EPS in the range of $0.67 to $0.70 per share, excluding Copaxone. I would like to again emphasize our commitment to our full year guidance ranges. We are confident in our targets for 2014, and we look forward to updating you on our long-term outlook at our Investor Day this summer. That concludes my remarks. And I'll turn the call over to the operator for Q&A. Operator?

[Operator Instructions] And our first question comes from the line of Douglas Tsao from Barclays.

So to start off with, I think the obvious one that is in a lot of people's minds is sort of an update in terms of capital deployment. Obviously, we've seen Meda has publicly acknowledged that you have approached them. Perhaps, provide an -- and Meda has also indicated that they have sort of stopped the talks. Just provide an update, first, on whether you are continuing to try to engage Meda in terms of a potential acquisition or merger, as well as what interests you about that particular business, sort of from a profile standpoint? And do you see another array of opportunities of like businesses that you could pursue?

Okay, Doug, thanks. Look, I'm not going to discuss any particular transaction. But what I will say is, we have been extremely active. And as we've said before, it's certainly not driven on inversion or synergy, that those may be a by-product, but very much driven on complementary, strategic assets to our current platform. And certainly, when you look at assets like a Meda, you can understand from a European -- extending our commercial reach, the portfolio. So I will tell you that there is -- that's just one of many that are out there that we believe would be very complementary to our platform. And I will tell you, we're very busy looking at all of them.

Okay, great. And then, Heather, as a follow-up question on Copaxone. You made a reference to events at the FDA that could potentially delay market formation for generics. If you could just provide a little bit more clarity as to what you mean by those kinds of events? Is this from a legal standpoint, given the ongoing review at the Supreme Court? Or is it just sort of other technical hurdles that the agency is obviously trying to deal with?

Yes, thank you. We see no legal hurdles. This is totally regulatory and administrative. I think that what we've been seeing with the agency is a delay. I mean, our ORTHO EVRA is a prime example of an important first generic that was delayed a bit. So we just wanted to point out that we see these processes. I can tell you that we are working diligently to hold -- to make the May 24 date happen. But I certainly want to clarify, there's been no event or anything. We -- as I mentioned in my remarks, we -- there's no -- unaware of any scientific issues. This is procedural and that we're looking very forward to bringing this important product to the market at market formation.

[Operator Instructions] Our next question comes from the line of Ken Cacciatore from Cowen & Company.

Heather, just going back to the first question on Meda. Just trying to understand, we are watching the public back and forth. So is this just Swedish disclosure laws and we're still working with Meda? Or is this something that we should assume has been concluded?

No. Look, I mean, I think hopefully you can appreciate there's a lot of sensitivity around any transaction. And so, certainly, we would be giving updates as we see appropriate. I just -- like I said, we'll reiterate that we are actively looking at several different assets.

Okay. And can you just maybe discuss -- should we think along the same size as Meda or would you be willing to go even higher or larger?

Yes. I think we have said that we'll stay within the parameters we've outlined, which allows us to do a fairly significant transaction. And again, and obviously, we've also said we are willing to put our equity to work.

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

Just a couple of questions, if I may. If you could again just help clarify Copaxone. And my question really relates to the at-risk launch, just given the whole Supreme Court situation. Heather, clarify for us your views of precisely what the Supreme Court is reviewing. And if you could talk about the exposure you see facing by a potential at-risk launch. Teva told us this morning that you would be facing treble damages, that you would be facing a potential loss of not only Copaxone 20mg but also Copaxone 40mg. So how are you guys thinking about that potential risk? And then just secondarily, on M&A, how just, from a high-level question, how do you balance your desire to get a deal done this year, to stay competitive and relevant in an industry that is rapidly consolidating with not overpaying just to get something over the finish line?

All right. Well, I'll obviously start with Teva. Look, I won't -- I know Teva's call was this morning and I won't try to pretend that I can necessarily connect the dots they tried to put out there. And I would say they have their track record for at-risk launch and so do we. So I would say that as we think about this, what I can tell you is, we're not characterizing the launch. Right now, I'll remind everyone that the ruling that stands is that their patent has been found invalid. And that patent office rejected now for a second time their reissue patent. And again, we continue to look forward to bringing this very important product at market formation. So as I turn now to M&A, because as we've continued to say, we're not about one product and our ranges and our guidance is not predicated on any one product. I would tell you, Jami, we're, like I said, very actively looking at many different assets out there. And I think that when you think about the parameters that we put out there, from a financial perspective, as well as being accretive, I think that you'd see Mylan -- our track record has been to be very diligent and very methodical about our transactions, not just a transaction for transaction's sake. I think that when you look at how we've continued to build the platform and now have the organic opportunities that we have and now with the substantial financial flexibility, both with capital, as well as with equity and the size of transaction we could do, I think that our patience and doing the right transaction has continued to pay off and will pay off for us this year. And I think that we see several different opportunities that we believe -- that's why we say confidently, we believe that we'll be able to execute on something by the end of the year.

Our next question comes from the line of Chris Schott from JPMorgan. Christopher T. Schott - JP Morgan Chase & Co, Research Division: Just maybe sticking on the business development front. Can you just elaborate a little bit more about how you think about product concentration when you pursue an asset? I guess, do you prefer more diversified businesses? Or when you look at the spectrum of assets on substantial transactions, would you look at a more concentrated product portfolio? My second question is on the same vein. We've had reports the last few days of several major pharma companies reportedly shopping their diversified brands. Are those type of franchises things that could make sense for Mylan or be of interest to Mylan?

Yes. So I would say on product portfolio, it's both. If you look at our Agila transaction, which gave us critical mass around injectable product portfolio and pipeline which, as we've stated, [indiscernible] positions us to become a leader in that category. So when we look at opportunity, it could be both complementary across geographies or concentrated. And I think that, again, this just gets back to our initial strategy, which is to be complementary with assets that build upon the platform that we have today. And as I've stated before, I think that there are still opportunities out there for some product categories that we're not in today. There are therapeutic categories out there, whether it be antibiotics or ophthalmics, things that we still believe that we have runway to add to our portfolio. And yes, we've seen, obviously, several of these established product businesses being discussed and absolutely believe that they would be, again, something that would be very complementary in nature, both from a geography perspective, expansion, as well as product portfolio.

Our next question comes from the line of Marc Goodman from UBS.

Two things. So, Heather, just on this M&A. I just want to make sure I understand. In the past, you all have talked about in the brand business being interested in staying in respiratory, staying in allergy, places that you know if you're going to make an acquisition brand. Whereas in generics, obviously, you're very open-minded to adding a lot of different things. That's what you said in the past. I'm just curious, are we changing that now and saying, "We're a little more open to a lot more different areas and brand a lot of other different types of situations." And then the second question is, can you talk about Europe, can you talk about France, Italy? Obviously, big countries that are important. What was going on, what was the market growth? What were you doing as far as share? How is pricing? Just give us a sense of what was going on in the business.

Sure. So I would not say anything's changed from what we said in the past. I would certainly -- referencing these -- the therapeutic categories and product lines across the Generics business. As far as branded goes, we said that there are, again, complementary assets out there in the respiratory, allergy and as well as dermatology. That's an area that we've continued to add. We certainly have a nice critical mass around our generic line and have experience in that. So that, from a branded perspective, is certainly where we've been concentrated. And look, I just -- what I would continue to say is, I think, this is a very opportunistic time in this industry with a lot of different assets being out there and being available. And I think that we're going to be able to do not only something substantial, but something very meaningful to our platform. And I'm sorry, what was your follow-up?

It was on Europe and...

Oh, Europe. So like I said, I continue to be encouraged by the trend that we're seeing. Given the mild winter, the entire pharmaceutical industry, the growth was down in Europe. But in our key markets, France, Italy, we outpaced that growth for Q1. And as I've said, we continue to see Europe delivering growth year-over-year for 2014. I'm continuing to see generic utilization kind of tick up slowly in these countries, especially France, Italy, our largest markets, to your point. So from our perspective, our vertical integration, our supply chain, has really been able to continue to kick in giving us very competitive cost of goods, controlling our own destiny through our own supply chain, as well as being able to continue to see volume growth offsetting some of the competitiveness in some of the countries. So I'm still very positive on Europe and continue to be favorable to the trends we're seeing there.

Our next question comes from the line of Sumant Kulkarni from Bank of America Merrill Lynch.

I have 2 to ask, both of them upfront. First one is on the FDA delays. At what point do you think that could change? And I know your company is very diversified in terms of revenue base. But in the event that a generic Copaxone and a generic Celebrex, Vivelle-Dot and Lidoderm don't come in this year, how safe is the guidance range?

Well, I believe that's a very, very hypothetical that the FDA is not going to approve any products. I think just like I said, that's why I mentioned our ORTHO EVRA important approval that we just received. So far, we're seeing some delays. I certainly don't see the agency as being shut down. And we have continued to work closely, obviously very much on first -- important first market, generic entry. Those are very important dates for the Office of Generic Drugs. That's very important date for the U.S. health care system, as well as patients out there. So I certainly don't concede that no -- none of these products are going to be approved. And I -- as we stated, our range both for our quarter and the year is not dependent on any one approval. So I think that FDA will continue to transform itself administratively. And during this transformation, we are seeing some delays, but I think that -- time will continue to kind of course-correct. And again, I think that this is nothing more than a bit of a timing issue.

Our next question comes from the line of Randall Stanicky from RBC Capital Markets.

Just going back to Copaxone. Is this something that's specific to Mylan? Or do you think it's a -- just a broader generic Copaxone delay, in general? And then, the second question is, as you think about the back half EPS ramp, obviously, it's a little bit more than we've seen in the past. EpiPen is a big swing factor. But can you just call out what else could be contributing to the moving parts in the back half EPS?

So let me first say, we absolutely don't see this specific to Mylan and not even necessarily a delay, Randall. We're trying to be prudent. And as I said, what we've done with our guidance but I will tell you, we're still actively working towards May 24, and regardless, believe that Mylan will certainly be there at market formation. Towards the second half of the year, what I would say are a couple of things. Obviously, our seasonality with EpiPen -- which over the last several years has continued to give Q3 usually one of our largest quarters. And then, on top of that, because of these delays that we've seen in these approvals, we have some approvals that certainly will be pushed out and falling into the second half of the year. So I think that there's some normality to the fact that our second half of the year has been historically larger. And I think this year, it could be even accentuated by the fact that some of these important launches will be happening now in the second half of the year.

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

So I guess, my 2 questions are, first, just a follow-up. In light of what you've suggested for the second quarter, it implies a tremendous second half is dependent upon a few launches, is that, right? I mean, have -- or should we just simply assume that the hockey stick will occur because Copaxone and Lidoderm launch in the second half? Or are there other important launches in the second half that we should be thinking about? And then, I'll just ask my second question quickly. If you can just provide the organic Rest of World growth in the quarter, excluding Agila.

Okay. So first, as I've continued to state, it's not -- our second half of the year is not dictated by any one approval. Again, I'd remind you that EpiPen, seasonally, Q3, is our largest quarter for it. So as that product continues to grow, obviously, that continues to be a significant driver in the second half of the year. Additionally, yes, while we have important launches happening in the United States, we also have many, many launches happening throughout the rest of the world. Throughout Europe, we have some big launches in the second half of the year. So again, it's not dictated by any one geography or any one product. We have a lot of moving pieces, a lot of opportunities that we're going to be able to bring to the market throughout the rest of this year. And I'll let John comment but we don't break out our businesses, and Agila's now fully integrated.

And also that I'm really pleased to be able to tell you, David, that the growth in the Rest of World in the first quarter was not the result of Agila. It was the result of our strong antiretroviral franchise in India. The -- our Agila business is reported in each of our commercial markets around the world as the Agila products are sold in those markets. So the Rest of World is really primarily organic growth.

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

Can you talk at all about -- first of all, in terms of the customer consolidation we're seeing across the industry, you're looking at a lot of different transactions. But what is most important to have for your platform in terms of serving those customers? And then, more specifically, on Copaxone, could you talk at all about your delivery device for your generic, which you proposed an auto-injector that could have benefits for patients?

Okay. Thank you. So as far as the customer consolidation, as we've said before, we see it actually as a real win-win because as we see our customers taking on a more global footprint, we believe that there's very few companies that can supply a true reliable supply of products. And so I would say the most important thing to our customers today is the guaranteed supply, a certainty around that products are going to be there when they need them. And I think Mylan has a very -- a great track record of being able to supply. And again, as we continue to vertically integrate our product portfolio, we're now making or producing 80% of what we're selling. So I think Mylan's control around its global supply chain is certainly, I would say, at the forefront of a customer's concerns and what they're interested in. And we've been able to set up great global arrangements that are able to give certainty around supply. As far as Copaxone and the device, I don't know, Rajiv...

I'll only add that our delivery device, which is an auto-injector, is not only comparable, but I think more patient-friendly. So I found that the same -- more on that.

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

A couple of quick ones. So for the Specialty business, can you talk about the magnitude of the inventory reductions and what the reason for that was and what you're seeing so far in the second quarter? Second question, just -- can you give an update on what pricing was in Europe and rest of the world and U.S. for generics? And just one big-picture question for Heather. For the second quarter, you've talked about the confidence in executing a transaction. Can you talk a little bit about, I guess, the rationale for talking about interesting deals as opposed to sort of learning at deal close? Because obviously, there's been some disclosure for Meda in terms of what you've been interested, but not a lot from Mylan. So I was just curious on that.

Okay, I'll start with the inventory reduction on Specialty. I -- we really had seen what was really compounded by the fact of the 2 very cold and long winters that actually this one, this most recent one predicated just some different buying patterns from our wholesalers. So we believe that, that is what the -- what we saw happen in Q1. As far as what we're seeing today, I can tell you, I'm very happy with the market growth, double-digit market growth, that we continue to see year-over-year and the market share that we've been able to regain with EpiPen. So again, we remain very bullish on EpiPen, I think, that we've got still tremendous opportunity there for the rest of this year. As well as pricing, John, anything on the stability? We continue to see stability really across our entire generic line on pricing.

Yes, I mean, the Rest of World pricing has been very stable. And we have not seen any hypercompetitive pricing there at all. So it's a very stable market for us.

And then, lastly on your transaction point. I think is, again, as you know, our personality, we will certainly talk about a transaction when we feel it's warranted or at the appropriate time. And until then, like I said, I'll just reiterate that we are actively working on many different fronts.

Our next question comes from the line of Elliot Wilbur with Needham & Company. Elliot Wilbur - Needham & Company, LLC, Research Division: Well, might as well stick with the subject of transactions and maybe get John to weigh in on this question as well. I hear a lot of talk about transactions and earnings accretion, but very few companies talk and particularly talk specifics about return on invested capital metrics. And when I look at a transaction like Meda and the numbers being produced by that company and the potential takeout value, it just seems like it's going to be very difficult to generate return on invested capital in excess of double digits. And so I'm just kind of wondering where exactly that metric sort of fits in terms of your acquisition criteria. And if possible, John, if you could sort of give us kind of a range or sort of what you're thinking about in terms of the required rate of return for some of these deals that you're looking at. And as a follow-up for Heather. I mean, we're probably not going to be able to shake the notion of treble damages around the Copaxone launch until something actually occurs. So maybe you could just sort of comment on the fact that you have a favorable decision from the Federal Circuit regarding the merits of the patent versus uncertainty at the Supreme Court level regarding the Federal Circuit's role in deciding that, and how that may sort of bifurcate just potential damages versus treble damages.

So I'll start, Elliott, on your question regarding return on invested capital and M&A. Number one is that you're aware that return on invested capital is an important internal management metric that we use. Our long-term incentive plan, one of the performance metrics under our long-term incentive plan is ROIC. So that management is incented and is very focused on that metric. When you look at our history, our ROIC actually has been double-digits. And we've generated that ROIC on the back of the acquisitions we've made to date. And I'm comfortable and very confident that with the acquisitions that we're currently looking at that we'll continue that track record and that our return on invested capital will not only be above the weighted average cost of capital of the company, but also double-digit.

And as far as Copaxone. So look, I'll remind again because you're correct, the Federal -- what's the ruling that stands at the moment is that their patent has been found invalid and that the patent office, as I said, now for a second time has rejected their reissue patent. As far as what's before the Supreme Court, I also think there's some confusion there, maybe not by accident. But Teva -- the question that Teva posed before the U.S. Supreme Court was whether a District Court's factual finding in support of its construction of a patent claim term may be reviewed for legal error as the Federal Circuit requires or only for clear factual errors. So it's really just that, that's a question before the U.S. Supreme Court, not the validity or invalidity of their patent. We know the U.S. Supreme Court can do whatever the U.S. Supreme Court wants to do. But again, that's not the question that Teva posed before the court. It's really what's the -- what's the standard that's before the court between the district and the federal court level. And the odds are that if there was a -- if they changed that, that it could get remanded. And I think to now jump from that to saying, if it got remanded, and what does that court case look like, and we're now years down the road, but I think it's way premature to be talking about what that would mean from a court perspective. And as I said, we're not characterizing the launch. So again, we look very forward to bringing this mark -- this product to market at market formation and hope that will be, if not May 24, as close to that as it possibly can be.

Our next question comes from the line of Liav Abraham from Citi.

A couple of questions, the first one on Copaxone. Synthon indicated last month that it received a complete response letter for its version of generic Copaxone late last year. Can you comment on whether you or Natco received a complete response letter for your generic Copaxone over the past 12 months? And if so, when you responded? And then my second question is on your generic Advair program. Can you just confirm your timelines there and that everything is on track for a potential 2016 launch?

As Heather has mentioned in our prepared remarks that there are no unanswered scientific questions. So whatever complete response letter we have received last year has been responded well in time. And is behind us.

And we're well ahead Synthon's case.

Yes. And we're well ahead of Synthon's case.

And generic Advair?

On generic Advair, we continue to execute on every milestone which we have in front of us and bringing this product to the market as we have shared with you in our Investor Day.

Our next question comes from the line of Tim Chiang from CRT Capital.

Heather, I wanted to just clarify that the so-called Copaxone issue -- now assuming you do get approval of the product, is it certain that you're going to launch the product? Let's say, it got approved -- I don't know -- August, September, is that a certainty at this point?

Look, Tim, as you might imagine, we look at everything and take very seriously and, like I said, have obviously a long history of launching products. And at the time of approval, we'll take all those same factors into consideration. But obviously, we have said that we look forward to being there at market formation.

Okay. And maybe just one follow-up on Lidoderm. I mean, have you had an active dialogue with the FDA on your ANDA application?

I can assure you, we are -- if there's another word beyond active that we -- I could underscore our interactions with the agency, so yes. I will tell you that we are having very active conversations on obviously many fronts. We have many important products that are pending approval. Lidoderm being one of them, Vivelle-Dot. So we've got a lot of great opportunities that we believe that we'll continue to bring throughout this year.

Our next question comes from the line of Jason Gerberry from Leerink Partners.

Actually, I have a question regarding, I guess, the inverse of Copaxone. On EpiPen, could you comment at all about just -- Antares disclosed in their last 10-K about an amendment that they'll need to submit on EpiPen ANDA. How that, if any way, would impact your settlement if they were to make meaningful changes to their product? Wondering if they can end up back in litigation with you guys. And then, just secondly, can you just repeat, are you reaffirming your $1 billion sales target for EpiPen this year?

Yes, sure. Yes, as I've said, we're looking forward to EpiPen being our first billion-dollar product this year. And as far as Antares' amendment, our settlement requires them to get their product approved, to come to market. So what I've continued to say is I believe that's a very high barrier to market to get a substitutable product approved. They certainly could have -- they could certainly be going the 505(b)(2) path, which is what every other person who's filed now on -- in this anaphylaxis space has had to do. So whether or not that what Antares' amendment relates to, I can't say. But like I said, I continue to say it's a very high barrier to be a substitutable product.

So thank you, everybody, for your questions. And we look forward to seeing you this summer during our Investor Day. And operator, you can close out the call.

Okay. Thank you very much for your participation in today's conference, everyone. You may now disconnect. Everyone, have a great day.