Q3 2019 Earnings Call
This time I would like to welcome everyone to the Mylan third quarter 2019 earnings conference call and webcast.
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No I'm just trying to call over time as Melissa Trombetta head of global Investor Relations. Please go ahead.
Thank you Lisa good morning, everyone welcome to Mylans third quarter 2019, earning conference call joining me for today's call our Marlins, Chairman rubber Corey Chief Executive Officer, Heather Bresch President regime Emily.
Commercial officer, Tony Mauro and Chief Financial Officer, Ken Parks during today's call, we will be making forward looking statement on a number of matters, including our financial guidance for 2019, and the proposed transaction pursuant to which Miley will combine with Pfizer Inc. upjohn's business in a reverse Morris Trust transaction. These four.
Looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to the earnings release, we furnished to the FCC on form 8-K earlier today as well as our supplemental earning side all of which are posted on our website at Investor day Marlin Dot com for.
Our explanation of those risks and uncertainties and the limits applicable to forward looking statements.
Mylan routinely post information that may be important to investors on this web site and we use this website address as a means of disclose any material information to the public in a broad not exclusionary manner for purposes of the Fccs regulation Fair disclosure. In addition, we will be referencing to certain actual and projected financial metrics of Mylan.
On an adjusted basis, which are non-GAAP financial measures.
We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of our financial performance.
non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with gap.
The most directly comparable GAAP measures as well the reconciliation to the non-GAAP measures to those GAAP measures are available in our third quarter earnings release, and supplemental earnings side as well as on our website.
Please note that this call relates to mileage third quarter 2019 earnings and will be limited in what we can speak about during Q1, a regarding the new company.
I will not be speaking about upjohn's business.
Let me also remind you of the information discussed during this call except for the participant questions is the price property of Mylan and cannot be recorded or rebroadcast without mylans expressed written permission and archive copy of today's call will be available on our website and will remain available for a limited time would that I like to turn call over to Robert.
Thank you Melissa and good morning, everyone with the special Hello, and welcome to all my when employees around the world into the up John employees, who will be soon joining forces with us.
I would like to provide you with a brief update regarding the proposed combination of Mylan and Pfizer's up John business, which we announced in July .
But before I do I would like to briefly remind all of our mileage vehicles or some of our board's rationale for this very powerful strategic and financial transaction.
For Mylan as a Standalone company, there's transaction represents an acceleration in combination of our own long stated goal of building a truly want to becoming global platform.
Position to serve and deliver high quality affordable medications to patients around the world.
The transaction will be what I described as my once final legacy transaction.
The combination with up John not only achieves our original goal, but it does so while expanding the geographical reach and scale, but my one sought to create on its own.
In that context. It also allows mylan to accelerate the expansion of its broad product portfolio in future pipeline, particularly in the Asia Pacific Region. For example in countries like China.
At the same time, we do expect mileage existing business to benefit greatly from the significant assets that up John will be bring to the new company.
In particular, the new company will have the benefit of upjohn's own high quality iconic brand portfolio.
Its own highly talented workforce needed bench strength in expertise, especially in the emerging growth markets and an enhanced commercial platform.
Overall, I am very impressed with a talented and committed up John team members, whom I've met since the announcement and I know that the Pfizer and Mylan teams are continuing to work hard to transfer all the requisite commercial and other assets to a standalone upjohn prior to the combination with Mylan.
Taking into consideration. These two expected transaction benefits as we have listened to input from many of our shareholders and other stakeholders overtime.
And then life of mine with recent strategic review intended to find ways to unlock the unrealized value that we believe still exist in my with today.
The Mylan board of directors decided to take this opportunity to create a new company newco.
By combining mylan with up Jones business, two highly complimentary businesses, establishing a truly unique new company profile with no direct pharmaceutical Pearson.
Newco will represent more than just the new name.
Once the transaction closes newco will have a new strategy, a new operating model and a further differentiated product portfolio as compared to mine when today.
Well as even a stronger balance sheet with new financial profile that will emphasize a renewed focus on capital returns to shareholders through anticipated dividends and stock repurchases.
Newco will also be a Delaware company with a shareholder concentric governance model and then expand the new management team comprised of both Mylan and up John executives to support the new operating model going forward.
With that said, one think will never change it newco.
Neither from the perspective of Mylan, nor up John .
And that is our steadfast commitment to providing high quality medicines to patients around the world, while serving new coasts employees are customers the communities in which we operate.
And newco truly will create a new.
Champion for global Health.
We also envision that newco will be placing much more emphasis and focus on total shareholder return.
And striving to earn multiple expansion from the market.
We believe that once investors have had the opportunity to learn more about the newly created company and its unique profile its differentiated platform and its ability to deliver sustainable and more predictable results over time.
Investors will eventually afforded newco, a re rating in its market multiple relative to mylan on a standalone basis.
This is obviously something that is not gonna be automatic but instead, we'll have to be earned and earn overtime.
And I assure you newco will be up for the task.
The Mylan board of directors sets the clear first example.
Well its signal to investors that its willingness on its own accord to returned the company back to the United States and organize the company in Delaware.
We continue to make good progress on the integration and other regulatory steps to be taken prior to closing.
We will also at the appropriate time continue to visit and speak with both the.
The Mylan and Pfizer shareholders over the coming months as well the sell side analysts to communicate our commitment to the success of the new company and help them better understand and appreciate the value creation opportunity that can't be derived for all stakeholders.
Since the announcement I've been spending a considerable amount of time with both Michael Gaugler, the new companies incoming CEO and Rajiv multi new coes incoming president both independently as well as together to discuss new coach anticipated key company initiatives considerations and price.
Ladies.
I'm very pleased to report that the Mylan Board is very encouraged with their progress and collaboration today.
We truly believe that Michael would rajiv represent the right combination to deliver the real power of what both organizations are bringing to the table.
In addition, I've spent.
Tom with other executives on both my with enough drawn teams and can already see and feel the power of what those individuals will also be bring it to newco.
I would like to thank our current CEO Heather Bresch for not only for continued leadership here at Mylan, but for also playing a key role and working very closely with Pfizer, Michael and regime to help lead our integration planning efforts for newco.
I would also like to thank Ken parks for his continued contribution and its efforts during this critical stage of transition.
In terms of the new CFO search.
Things continue to progress well and we fully expect to have one announced before closing.
I am excited about Nucor's, new management team and other future senior executives of Newco who'll be playing a significant role in optimizing total shareholder return by demonstrating <unk> ability to execute flawlessly on new coasts, new strategic plan, while consistently delivering under financial objective.
Yes.
This will be one of the most critical variables. If we are truly to earn the multiple expansion that I discussed above.
I would also like to note that since our announcement I had been on the road with Michael in regime, and others as well to meet with shareholders. In addition to sell side analysts to not only discussed the transaction, but also book what we believed to be a solid roadmap for newco and its management team to focus on its execute against.
And lastly, before I turn the call over to Heather to discuss what today's calls really all about which is mileage third quarter and year to date performance I would like to comment on one question. We received on the S. Four that was recently filed in connection with the transaction.
I would simply like to point out that the internal financial projections in the S four or not and should not be used as financial guidance for newco.
The financial guidance for the New company will only be delivered by new coast management at or around the time of closing, which is still on track to occur in mid 2020.
What I can't tell you is one nucor's management does provide its initial financial guidance targets to investors.
Fully anticipate that you will be given a strong range of revenues.
EBITDA EBITDA margins and shown significant free cash flow generation and provided other financial metrics that will be very important for shareholders.
My expectation is that the guidance. They provide will also fully accounted for all the questions that have been swirling around and the new ones that even may come up whether it's the VBP in China or lyric a in the United States or lira in Japan et cetera, and on it on the new company.
He's management will fully incorporate their assessment of the potential risk, but even more importantly, the potential upside opportunities known at that time.
In closing I can certainly tell you that everything I have learned on both sides of the equation. Since the announcement has only further confirmed my excitement my confidence and not only the powerful rationale for this transaction, but the anticipated strengths of the combination of these two highly comps.
That's very businesses and the ability of the new company to deliver real value to shareholders based on our new business model.
Over the long and sustainable future ahead.
I will now turn the call over to Heather, but we'd like to emphasize what Melissa mentioned that we will be limited in what we can speak about on the Q in a regarding the new company and we will not be speaking about upjohn's business. Thank you.
Thank you Robert Good morning, everyone and thank you again for joining today's call I'd first like to reiterate Roberts the board and managements continued enthusiasm for the progress we're making on the path toward a successful close to the combination of Mylan incisors Upjohn business.
Robert highlighted the combination not only makes good financial sense, but also will making meaningful difference for the patients. We serve importantly, the deal also has the potential to create opportunity for Mylan enough John colleagues around the world for those Mylan employees joining us on today's call. Thank you for all that you continue to contribute to bring our mission to.
Life each day I'd also like to welcome any update on colleagues, who maybe listening in we look forward to continuing to collaborate with you as we work towards next steps in the successful combination of our two companies.
As we prepare for the closing of the up John deal. We are still continuing to focus on the previously announced transformation of mining business.
You'll recall from previous call. We view this work as an opportunity to unlock latent value within the organization and instill additional focus on economically profitable performance. We have now begun the execution phase of our transformation.
<unk> regime will share more detail in his remarks, however at a high level, we have applied a highly disciplined financial lends to the assets, we've integrated and built throughout the company in order to streamline our portfolio rightsize investments and improve the efficiency of our companies operating model.
Our approach across the board with business transformation has been very purposeful.
Purposeful and how we rationalize operations and purposeful and how we invest you'll see some other levers we have been pulling reflected in this quarter's results. However, it's important to note that our meaningful transformation will be a multiyear process. The one quarter cannot be a proxy for the long term profile of the company.
At a minimum it would be best to view our results on a year to date basis, where are you will see that we are aligned with the ranges. We provided at the beginning of the year the strength of our performance highlights our holistic intentional and focused approach to managing the overall health of the company for today and the long term.
To date steps, we've taken to rationalize value consuming volume from our global portfolio of products are reflected in the top line this quarter.
Notwithstanding we grew every region year over year on a constant currency basis.
And on a year to date basis, we achieved 3% growth in total net sales with all segments contributing to the positive results on a constant currency basis.
Adjusted gross margins were down slightly for the quarter. However, despite ongoing pricing headwinds and changes in the competitive environment. This year, we had been able to maintain our targeted total company adjusted gross margins of over 53% year to date.
For the balance of 2019, we remain confident in the company's ability to execute and in fact have already achieved the milestones necessary to reach our expected full year results.
To date, we've already launched 800 million and new products and remain on track to have more than a billion for the year, including our launch of they'll give free our bison, our biosimilar to herceptin, which we expect to occur within the coming weeks.
We also see adjusted free cash flow sequentially, improving in Q4, resulting from the normal cadence of the business along with realize benefits from targeted working capital initiatives.
This strong cash flow generation will help fund the remaining portion of the 1.1 billion of debt pay down we committed to at the beginning of the year.
As we close out the year, we will remain extremely focused on execution in order to deliver on our commitment to that end, we're tightening our guidance within the ranges. We provided at the beginning of the year, including 11.5 billion to 12 billion and total revenues and for 20 to 440 and adjusted EPS.
While maintaining our expected adjusted free cash flow range of 1.9 to 2.3 billion.
With that I'll turn the call over to regime than Ken for additional detail on the quarter before opening the line for Q anyway.
Thank you Heather.
I would like to equal my excitement about the proposed combination we had been Mylan and Pfizer Upjohn's business.
As we continue to plan for integrating the company.
I look forward working with Michael and other members of Upjohn management team to ensure our ships success.
The same time I can assure you that we as Mylan Kobi habits debt Foster education will stand alone execution and on a highly complementary to finishing the year strong.
I'm proud of all four implied.
Well, what badness across the water doing fees.
Through the medicine, each and every day.
Oh, good momentum pack them for their continued commitment and hard work.
I also would like to welcome any update on in a lot on this call.
That'd be stock by providing and Wholl review our businesses by region.
Starting with North America, we had high single digits Netseer school of each person in comparison to the previous yet.
The increase was primarily influenced by the strong execution and for fall myself several key products.
Starting with floats enough, we have been able to accelerate the expansion of them in fact in capacity and are optimistic to office nice you didnt have varied near term.
With the entire backfill exhaustive market growing at a high single digit and only 23 parts. It's also total new lost some market then lucky to Biosimilar. The underlying demand is here and we are confident that we will play a meaningful role in the continued expansion of this market.
Next the launch of or novel once daily long you penalty has met our initial expectations and is now gaining one of their momentum.
You bet it needs to be has 83% market share of Nebulized Lama market.
We see this as a short and long term opportunity in a critical set up a good disease state.
Moving onto the generic Copaxone, we have strong demand we've got in markets, yet exceeding 35 person.
As we continue to meet patient needs on this important product.
We couldn't do you need to see uptick on growth as the new prescriptions are no greater than 40 person markets yet.
We also off happy that bookseller is steadily gaining market share and us no cross toady person.
Fight the very aggressive she had attention said that you'd be a come by the fact.
We remain optimistic that did for convenience listed legal and are mainly due to build for fall off as we look at between <unk> and beyond.
And last but not the least we continue on our journey to expand access to a biosimilar stresses map arguably.
We have secured regular do you have was it more than 75 countries globally and on track with launch in U.S. in coming weeks.
We expect to be the first company to bring forth stance of the for the 420 milligram and 150 milligram to the market.
Moving to Euro Netseer has brought up six person on at constant currency basis in line with old expectation.
Making good progress across many markets and be food and we had we invest to optimize mosquitoes.
In fact.
I missed all performed above expectations and are continuing to grow year over year.
We were especially pleased with Germany's growth will keep brooks, including Julio Biosimilar humira and improve that.
In the rest of the board segment net he has brought up for questions on a constant currency basis.
This increase was primarily driven by the new Berkshires, Australia and emerging markets.
And higher volumes off existing products, including growth in our global key brands, such as Donna and he does as well as all biosimilar.
I'll now like to she had a few highlights allergic locked pipeline.
For Bevacizumab, if I assume that to invest in.
In addition, it back on the topline plenty to those four fees easterby non small cell lung cancer medicine necessity and thank you yes.
Mining is on track to submit the U.S. BLE, but ended up this year that you submission will follow in Q1 upgrades Wendy.
Additionally, we have initiated if we see clinical trial for is as spot.
Oh, you looked into good he application was accepted for review at the end of that will work.
Our after submission is on track to be submitted mid next year and we are projecting to launch the product in the second hop off 2021.
Why don't insulin glargine in collaboration with Black on we have received more than 40 to <unk> and recently launched in Australia.
Well the U.S. Mottaki Mylan received a complete response letter that's 29.
The CNO confirmed that the scientific matters of that view, what pools and phone acceptable.
Viacom and militia addressing the militia proceeded deacon soon.
And I committed to dissolve these in a timely manner.
We are working closely with FDA and remain optimistic for the fourth quarter approval prior to that transition did whereby the deep.
Regarding Julio our Biosimilar Humira, we therefore not up Gabby, we remain on track for it frequently see launch in U.S., we now have regulatory approvals in nearly 30 countries.
For a biosimilar.
Do I via their nuclear being developed in collaboration Momenta under my Mindy.
Our global feeds the clinical trial underway and we couldn't do you could talk at U.S. submission for quarter, one off 2021.
Regarding our partnership with demand for a biosimilar to blocked off.
The after getting meeting.
Earlier this year short the biosimilar phosphate will be waibel.
We extended.
Extended out to see in time named as the rest of the plus bottled 2020 .
In the meantime to Ras would be working to provide some additional liver delivered it was related to the program.
Our flock not met beauties, India knows the enrollment of the force patients in this phase three study fork lift there, but as you did once a month people.
This is a key clinical study part or are you a submission.
At excited to have dispute underway and continued to be encouraged by the scientific success of this program.
Now I'd like to further build upon hasn't come in on our business transformation program.
We have completed a holistic view our business plan and developed an integrated transformation.
Planned for Mylan Standalone business.
We have already begun the implementation of this plan, which will continue into 2020.
But I do and concurrent with Upjohn integration.
The business transformation program includes.
Rationalization or products knocked on need your cost of capital.
The folks in commercial resources to pour more important wrote off or most responsive Brooks, while improving margins up onto sponsored products.
And what the centralizing and Rightsizing, our commercial and operating infrastructure I.
Let me walk you through some examples.
For studio focus was on professional division.
For example in U.S.
The customer consolidation and Mark Maki dynamics have continued to put pressure on prices of some of our oldest commodity products and it as it is the birth margins have been driven low fully loaded economic cost to date, we have decided to address nice more than 350 ft you across auto sought.
<unk> doses.
Throughout this process.
After used truck sharpest. This has been double for mine, along with a patient and customer specific needs.
Why the rationalization does not impact off on the bottom line. It does have an impact on our topline results.
In other 80 off review was on the focusing on commercial resources.
Comprehensive assessment of the C. As a sponsor of net of commercial investment has been conducted across all major markets. Anderson, then drug product level.
When we should that I called future commercial spending.
This work has highlighted the opportunity for the opposite optimized.
Our next year list expenses in the near dumb widely evaluating potential revenue growth in future years.
We'll continue to assess the dawn on our commercial investments going forward.
Regarding capital allocation for the future, we comprehensively, then Richard or R&D pipeline, and rationalize investments taking into consideration evolving industry landscape.
Regarding commoditized products, while focusing all our focusing on our stated objective of moving up the vet each in retail scientific that fall.
Lastly, we are focusing on centralizing and rightsizing, our commercial and operating infrastructure.
The decrease shared centers of excellence and consolidating all production capacity as an outcome of this exercise we will be eliminating the stranded costs across the organization.
As you can see we have a lot of exciting initiatives underway and remained focus on the performance in 2019, while looking I had two or next journey into <unk> and beyond.
With that I'll go into caught owed to Ken.
Thanks, Rajiv and good morning, everyone.
I'll take a few minutes to provide a quick overview of our financial results for the third quarter.
Total revenues of $2.96 billion were 3% higher than the prior year.
Excluding the negative impact of foreign exchange constant currency total revenues grew 6% with all segments growing year over year.
The growth was primarily driven by new product sales of approximately $247 million with approximately two thirds of that number in our North America segment, primarily driven by weak Sola and you Pell resells.
The remaining amount was split evenly between Europe and the rest of world.
This growth combined with higher volumes from existing products was partially offset by the impact of lower global pricing.
In the third quarter, our adjusted gross margins were approximately 53% compared to 54% in the prior quarter and approximately 55% and the same period last year.
The declines for both comparisons are primarily the result of higher sales of the authorized generic version of MP pen, which carries a lower than company average margin as well as changes in the competitive environment on certain products.
In addition, there were certain inventory write offs the largest of which is dated work sela product, resulting from the later than expected approval and launch date for that product.
These inventory adjustments are not expected to recur in the fourth quarter.
Moving to segment profitability, excluding approximately $58 million in 2019 and $98 million in 2018 relating to the Morgantown restructuring every meeting remediation program North America adjusted segment profitability grew 1% quarter over quarter, which reflects.
Contributions from new product sales, partially offset by impacts from lower pricing and volumes on existing products due to changes in the competitive environment, including the loss of exclusivity onto dollar Phil along with higher investments in selling and marketing.
Europe segment profitability expanded 5% driven by benefits from new product sales, including Julio our Biosimilar humira higher volumes on existing products and lower restructuring costs.
These increases were partially offset by the expected higher selling and marketing investments and lower pricing.
Rest of World was down 12% versus the prior year, mostly driven by lower gross profit on a RV sales, resulting from higher apiay costs expected higher investments in selling and marketing and lower pricing, which was partially offset by contributions from new product sales.
Both Europe and rest of world reflect unfavorable impacts from foreign currency translation.
Adjusted R&D was down 10% compared to 2018 for the third quarter due to reprioritization of global programs.
For 2019 full year, we continue to expect to invest between 4.5% and five and a high percentage of total revenues to fund the long term health of our business.
During the quarter adjusted SGN, a increased 6% compared to the third quarter of 2018.
Reflecting the expected incremental investments in selling and marketing, partially offset by benefits from existing restructuring activities along with business transformation initiatives.
In addition, the prior year included the favorable impact of reversing certain performance based incentive accruals.
As previously indicated we'll continue to make our investments as efficiently as possible monitoring and managing such costs to support topline expectations and growth opportunities.
For the quarter, we reported adjusted net earnings of $604 million and adjusted EPS of $1.17.
The year over year decline is primarily driven by unfavorable impacts from foreign exchange and the increased SGN a that was previously discussed.
Adjusted free cash flow for the quarter was favorable to our expectations at $542 million.
Year over year adjusted free cash flow was slightly lower by $156 million as a result of the expected increase and operating net working capital required to support the new product launches in the year.
In 2018, North American revenues were essentially flat from Q2 to Q3, requiring little change in working capital.
In 2019, North America revenues grew 6% sequentially from Q2 to Q3 generating trade a our build in Q3.
The current year that will result in incremental Q4 cash collections and cash inflow.
We are ahead of our year to date expectations for adjusted free cash flow and remain on track to deliver between 1.9 and $2.3 billion of adjusted free cash flow for the year, including ongoing working capital velocity improvement initiatives.
During Q3 2019, we repaid the remaining $100 million of our outstanding term loan and reduced our credit agreement debt to adjusted EBITDA leverage ratio to 3.8 times.
On a year to date basis, we've repaid approximately $650 million of debt and expect to repay additional debt in Q4 to reach our target of $1.1 billion of debt repayment for the year.
We remain fully committed to our deleveraging strategy and our investment grade credit rating.
Finally, as you heard Heather mentioned earlier, we've narrowed our full year 2019 guidance range.
We now expect total revenues in the range of 11, and a half billion to $12 billion, we narrowed our revenue outlook to the lower end of our previous guidance range for two primary reasons.
Currency movement is expected to generate approximately $250 million of headwind versus our budgeted expectations alone was slightly lower expectations for new product revenues.
While our Launchable Accella has been very successful full year sales are anticipated to be a bit short of original expectations. As a result of the aggressive share retention actions by the brand that was you've mentioned.
In addition, the approval a generic restasis continues to be delayed.
Despite these headwinds we remain on track to deliver adjusted EPS at the midpoint of our original range due to proactive cost management through the year and are narrowing our adjusted EPS outlook to $4 in 20 cents to $4 in 40 cents.
Based upon year to date strong cash flow generation. That's ahead of our initial expectations, we're maintaining our outlook for adjusted free cash flow in the range of $1.9 billion to $2.3 billion for the full year 2019.
With that we'll now open the call for questions.
Okay.
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Your first question comes from the line of Randall Stanicky with RBC capital markets.
Okay. Great. Thanks, guys. Just two quick ones, one just going back to the comments on not viewing yes for projections this guidance.
With new co guidance coming at closing should we still be viewing the initial newco guidance when the deal was announced as a as appropriate targets and then the follow up for raw, but bigger picture one on business development.
Now that you can become a bigger I have a bigger brand footprint and given the fragmentation of the.
The smaller cap specialty branded space and there is a huge opportunity to therapeutically consolidate that space is that something you guys are looking at and can you start you could start looking at pursuing that now thanks.
Thank you Randall let me start with the last question I I think you're you're spot on I've I've read some of your prior nodes and have been following very closely I think you're really onto something there.
I think what were most most excited about in terms of the future upside and you're you're exactly correct.
We are definitely mining was already moving up the value chain, but with the size that we are now are our investment in partnering especially in the potential to.
Look at future capital allocation and what areas of concentration. The answer is yes, I do see further alignment to participate.
In that because.
Our our portfolio that we're going to be bring it especially to the Asia Pacific region is going to present huge potential upside and I think at the time of closing I fully expect that we're going to outline as we talk about future capital allocation and touch on some of these points in terms of the numbers we gave in July .
We absolutely and I I understand I wasn't on Pfizer's call, but look we stand by what we gave in in July for 2020, I'm simply just reminding people to level set them on a going forward basis. Obviously, you know we have I think very clear vision about.
What we're faced with and nothing I see today that has been brought up not even any new issues that were raised by some who are now getting a better understand the business.
Does anything to remotely change my absolute excitement about what we created with the two combinations and I'm very much anxious and looking forward to be able to show you that once we could get closer to close.
Your next question comes on line of Chris Schott with JP Morgan.
Great. Thanks for the questions I guess first one here can you comment on the China opportunity for the pro forma company in light of the temporary dynamics have been rolled out there's obviously a lot of focus.
On that market by the street, so maybe just talk a little bit about what is trying to look like for the pro forma company over time and just as my comment on the pro forma guidance did it fully anticipate some of these tender dynamics.
I can really quick one can you just you talked earlier this year, what the step up in that she and I investment in the portfolio does the up John deal change either the priorities for that investment for the size of those investments as you think about the much broader business that you'll be running over time, thanks very much.
So thank you, Chris and all against start with your second question because it really applies to my commentary on the S. Four.
When you bring it to organizations together was in the us four or to internal companies projection internal independently company projection.
Projections, one of the things that you can't see that that's actually well underway to your exact question is it those projections do not take into consideration for example.
You know the regulatory overlay you know what products, we may have to divest.
Product rationalization between the two organizations and then where do you now put your emphasis when you bring to two organizations together. So your question is well founded and I want you to note that work is underway and I do believe between now and closing will have that all sorted out and be able to lay that out for you in terms.
As of how we see whether its SG in a.
Or other cost allocation for the business model on a going forward basis.
In terms of China. There is nothing really happened in China to be very honest with you that you know.
We have not I can't say that we didn't anticipate now there's always nuances I'm not going to say the you know where nostradamus, we can predict everything, especially in China, but there's nothing really there other than you know there could be a tweak and some of the new rules that they're putting out that that may cause.
Some changes, but I would say in large part overall there is an anticipation on our side not for just what's happening in China today, but there's an anticipation for a continuation as that health care system over there are changes and what the reason why we continue to be extraordinarily bullish he's been.
As we we've now got eight a true commercial infrastructure over there.
That is well situated in suited especially with the massive product portfolio, which dealt with that we're bringing in by the way. This is a product portfolio. That's very much needed over there. So we think that all the stores are aligned to move our massive product portfolio that has already been identified.
Who moved into the China pipeline and also to two randles question. Some of the opportunities. We see that we could also as we go up the value chain to bring and leverage now the strong commercial infrastructure that the Pfizer up John Division.
Now brings us.
Your next question comes on line of Elliot Wilbur with Raymond James.
Thanks, Good morning couple of questions I guess, the most appropriate for Rajiv first could you clarify your earlier commentary around.
The portfolio rationalization process wasn't clear to me if that was more of a retrospective comment of prospective I think you said 350, skews and talked about the negative revenue impact.
I'm, assuming that was largely on a historical not a go forward basis, but maybe just.
Clarify that please and then just a follow up on.
Insulin glargine.
Should we be expecting to hear nothing from FDA until March 18th I believe meaning that there would not be a tentative approval only a final approval issued on that much sure what is going to happen on that product and obviously a march twentyth is sort of a key Dave with respect to hitting the.
If the deadline. Thanks.
The tax and it up.
I think the portfolio rationalization, what I had given you was just an example than you would see that what we are undertaking that if the products have not at the products have been commoditized to an extent that they're not our need to cost of capital.
More you sell them it doesn't make any business fashion house. So yes depend you rationalize those products.
There can be some topline impact, but there is not significant bottom line impact and we have extended its not just the USA, but we have evaluated on a global portfolio from that point of view now why don't we see that this is not a onetime exercise because this is the new discipline. We have created it will be on ongoing basis.
But you will not see it looked like this but I just said the could be asking you because once you clean it up on a week forward basis did we some products. It ended but there would be not bullish like that.
Regarding insulin we absolutely expect to hear from them I think before March we believed that this.
Concern the buttons, Malaysia facility, which we are in the process of addressing we'd be behind us.
In the.
The first quarter and yes. The final approval is on the date of that March March 20th on something that owned that that's the date and we're very confident that it would be boot, we'll get our final approval before the transition date to biology.
Next question comes from online I mean do marathon with Evercore.
Hi, Thanks, so much for taking my question.
Robert You mentioned, you're comfortable with the numbers previously communicated for 2020, but 2020 still in flux because of things like Luca, Japan, which will still be part of 2020, but not a pro forma or 2021, if I may so I guess, if we were to focus on true pro forma number for the combined newco and I realize a lot of work is going on.
Lot of the Street debate is is aggregating around number closer to 18 billion than not I'm curious to what extent you're willing to comment are able to comment on that.
Secondly, I'm I'm curious the magnitude of divestitures that might potentially be required because I think that's one of the things that perhaps isn't baked into a lot of the street numbers, where they would just put the two together and trying to model out China. So I'm curious any early feedback on that and finally, one for Ken as if I may I can.
I've looked at the purchase accounting amortization numbers in the sheer magnitude if at all was confuses me a bit. So I was going to ask you in simple words, what exactly is that and do you expect it to stay at billion five for the foreseeable future.
Why don't you go first candour.
So over the the billion five is truly as you know when you go through a purchase accounting.
A certain amount this but in goodwill.
And amount that's attributed to a customer portfolios.
Products valuations of assets and that goes into this amortization bucket that gets amortized over various lives depending on the estimated remaining life of the appropriate assets. The short answer to your two year billion. Five question as you know and this is on a mile in Standalone basis, obviously, there would be other work done one.
So newco transaction occurs but that that billion five should tick down slowly over time, because each year some of the amortization our some of the intangible falls off so I would expect for the near term it may tick down slightly but it will continue for a period of time because many of these underlying assets have long lives, especially.
Things like customer assets and products.
I think on the divestitures at least what I'm being told now Boomer I don't see it as a real significant number but I don't want to jump out in front of the regulators because they can actually you know go in one direction or the other whether it's you know our product or even their product that they would required.
To be divested so I prefer not to jump on front, but I I think we've said this before and I feel very comfortable I don't see it a significant.
But there are obviously is going to be some and my understanding to those discussions are progressing quite well.
In terms of yet I mean look at them or I think that I really can't comment more on the numbers that we put out that.
As we were trying to say you know with the assumption. If we you know looking forward by the time, we anticipate to close I think it was July 2020, here's kind of sort of what we saw the organization looking like that that debt that range that we've given you that is what it is.
Right.
Since then and since we've been out trying to.
Discuss with investors.
And that we're not giving any guidance I actually been following a lot. What you have been trying to rationalize I actually think you're doing a pretty damn good job forgive me, but I really think you're doing a great job and trying to also find the right level set I I I cannot wait until we can get closer the close.
Get some of this work done and really you know clear up.
For investors you know just where is that starting point and I made it abundantly clear that starting point from everything I could see no today.
Without giving any guidance I am extremely confident that the street will be very pleased about where wherever that starting initial guidance is a and b. The strong EBITDA, that's going to come with it because remember what you're going to see is the rationalization of the portfolio run.
Additional information of cost based on what we can see out in the future and then the synergies coming in so that's why we feel very confident that will give you a very strong range of revenue.
Without me, telling you exactly where that starting point is gonna be it in and even a stronger range of EBITDA due to the.
Synergies that we intend on bringing in and the cost rationalization that we can see as we adjust for the various health care market markets around the world.
Your next question comes on line of David Risinger with Morgan Stanley .
Thanks, very much so I have a follow up question for Rajiv.
Could you just brought a little bit more clarity. So the 350 S.K. you rationalization, what does that timing what inning are we in now are we in the first inning and then for the 350 that you've identified is that going to be done on a year or two years, just wanted to understand that and.
In terms of that constraint on a global revenue line and then kind of quick question, you mentioned inventory adjustments on the third quarter could you quantify the negative impact on Cogs and gross profits in the third quarter. Thank you.
They would go up P 50 was the U.S. specific number and as a as you go along the business transformation in you would see as long as well as mark it down remediation.
Each was more driven by channel resolving that complex the issue of the site could not have come at a better time, so bored up both of these off products because many of those commodity commoditized products, while also adding to the complexity. So it was very natural for us to date that block and rationalize it right up front.
So I would say for the US almost 80, 90% up rationalization has already been Don and is behind US as we go along that's of the war and the European rationalization will be item that I think the second phase.
And David on your question around the inventory adjustments on the Cogs impact.
In the quarter, approximately 30 to 40 basis points on the gross margin rate and as we called out the biggest chunk of that was this data to accelerate inventory that.
Was as we are preparing for commercialization and launch we built inventories to be sure we could launch on a timely basis and the launch was delayed.
It's important just reiterate again that we do not Walton explanation for the third quarter. We have no reason to believe that will recur in the fourth.
Your next question comes in a line of Gregg Gilbert with Suntrust.
[noise], Yes, I first Rajiv can you give us your thoughts on the environment that you'll be launching into for the Biosimilar Herceptin in terms to your supply situation and what launch trajectory, you're expecting and then for Robert going back to you setting the bar and 2020.
And then providing outlook from there you've had some experience you in the board and my own I've had some experience setting long term guidance for the Standalone company in the past it seemed to create concerns in controversy around your ability to hit it whether biz Dev would be required et cetera et cetera. So my question to is how will you on the board approach.
The concept of long term guidance.
When the deal closes and perhaps what was learned from from the last time. Thanks.
Great Great question I have to tell you. That's a great question, but really why don't you go first and then let me respond.
Go ahead.
Herceptin, then Tony and had a PC feet.
At plus a fought ask what has the capacity that's not a constraint capacity for himself and his thunder Constantin we have ample capacity.
Yes.
That liquid market.
Second I know you know why we are.
Second Amgen has been debt, but we would be the plus one to bring and hopefully we are expecting to be the first one to bringing the board Stan and would be.
Launching disposals in a couple of weeks, yes. It already you know for more approvals are.
We see that but again and this one I would see that to differences in five to compare of want its part b and incentives are pretty but a line also.
And this gives up if we have compared with the Neulasta biosimilar, we see a slower ramp because it will be more.
Well not it would be that's sort of a sweet spot war.
Prescribed the newer patients. So you can see a little bit slower ramp on that as compared with that but we see the ships why ultimately leading to the decent in motion of this broke through the Biosimilar spone.
I just might add that our 50 sales reps, who are I'm going to be selling these oncology. These very vital products to the marketplace are trained and ready to go and I think as Rajiv articulated we're well positioned for success with this launch in the coming weeks.
So Greg let me.
Hit what I consider to be.
Very powerful and potent question quite frankly.
And I think a very fair question.
Let me start with the flush duration that we the board.
And.
Has had.
In the past.
In dealing just with the point that you have outlined and let me tell you why I do not see the same things on a going forward basis it comes into parts.
The first is in the past what was what management was trying to predict was predominantly in my opinion, a north American story in North America story, I don't know what more to say the U.S. generics business. We had you know we had a very high class issue we had some.
Really rare powerful large opportunities in the pipeline to launch.
And when we planned or when we invested in those original programs I don't think anybody could have anticipated the structural changes that have been put into that that that have come into play in the U.S. market.
In the North America region.
That you.
You had two things happening there was a timing issue of when we would get the approvals from the the FDA and then you had the structural changes that actually were occurring and it was almost like one after the other so the frustration that the board that I'm certain that a lot of shareholders had was the predictable.
Melody of such you know a powerful pipeline with a very large opportunities.
And if you don't that these things don't line up well it causes a tremendous amount of oscillation variability.
Certain see unpredictability.
And then if you put on top of that you know the fact that you know investors have told us time and time again.
Got you know if we're not as transparent about you know all these things that I am now explain to you.
And it seemed like that we were you know coming forward. After the fact to try to explain these things.
And one of the things I learned in speaking with investors and also sell side analysts is how we can do a much better job if if on the inside we can envision in seat all of this potential risk then why not come to investors and sell side analysts as quickly and advances we can.
And to lay out what we potentially could foresee so that people don't get frustrated that the company.
It is not being as open as transparent.
Not provided the right type of disclosures for analysts or investors a like two to two model.
And you know and not wait to the actual events to occur.
So I'm, taking my time articulate and all this because if we're not aware of ourselves in for not aware of what went wrong in the past you know, there's it's going to be we're just kidding ourselves about correcting all this as we move forward and the future now as we move forward into future one of the other reasons.
Why I'm, helping level set everybody and I do look I think boomers done a great job and his quest to really digging deep and really try to understand and I think you know.
What I can assure you what we're doing is identifying all those potential.
Risk that we could see in front, we don't see anything that we have not that really has some super surprised us.
But what we haven't had a chance was a talk about all the other opportunities.
And so one of the things I think would be helpful is that once these l. Luis of of the Upjohn portfolio is out of the way, which were fully incorporate we're fully anticipating the final elouise that'll go out of the way youre going to find even a broader and more diversified portfolio.
That app that actually has a lot less oscillation to it.
And the way, we're gonna get investors comfortable going forward is let me give you. An example, if we decide to report the business on three regions, Let's just say developed markets emerging markets in Asia Pacific markets.
And if there's one particular market very large like China and Asia.
Pacific well carved that out.
But I think doing what we promised both Oh, you analyst and investors, we're going to sit with each and every one of you and we're going to walk you through and do a swap analysis, a rod each particular region.
Each particular country.
And as we talk about the strengths the weakness is the opportunities and threats.
Rather than you relying on us solely to be the only ones, giving the you know telling you what we anticipate I think once we go through that exercise and have our discussion about our views about how we're looking at the business going forward. Your views, how we should look at the business going forward.
There is gonna be discussions about how we report on our business I'm certain theres going to be three buckets.
You know metrics that we absolutely cannot give you metrics. We absolutely are very easy to give you and the middle bucket those metrics that I think can provide some great dialogue and really come through a compromise, but make sure that the starting point everybody is on the exact same page I don't think I want you invest.
There is going forward and you analysts to rely solely on management, if we do a good enough job given you all the information that we have upfront being even more transparent than maybe what we have been and a lot. When you all to reach your own judgment. So I do feel that going forward to summer.
I think it's going to be a combination of a less.
Volatile business with not as much oscillation to it the way we're going to level set.
And to demonstrate a this new diversified.
Global platform that we have I think we can get people comfortable with that and then look we're trying to bring in a different kind of a management team.
Who really is focused on execution when I think about where we're taking the company and we're going to definitely needs to three year transition period.
Be honest with you were moving the company to something quite different in terms of a business model and when it comes to execution, which does require a different mindset a different managerial mindset I think we were well on our way with the beginning of the transformation work that was done that was going to take time and <unk>, but I do but.
But this transaction has only forced us to accelerate the strategies that we were doing on our own anyway, and I think that you know Michael and others.
I do believe represent more of the future of where we're moving the company because they are they are much more driven through sheerly, you know executing on numbers and delivering on numbers well be just very humbly honest with you up until this point my Lin from 15 years ago, we built it spend.
Our entire time building.
Building a true one of becoming global platform that is second to none there is not another peer set that matches, what we have built and that's why we're so excited about Randall stanicky work he's doing around this concentration of therapeutic categories, because we really have a glow.
So platform to leverage to return on our future investments and so I think you know look all this is culminating together and I I hope I apologize for the long winded answer, but I really thought that was a pretty powerful <unk> question. That's on everyone's mind and I hope I was able to answer that.
Your final question comes from online Jason.
Yes.
Jason Gerberry with Bank of America, Hi, This is a ash on for Jason two questions hippies. So first is though you partner Biocon is guiding to one 1 billion dollar in Biosimilars seats by financial year 2022, how does that impact youre thinking about some of the opportunity.
Is that you haven't trying to view.
And then the second question is more around 2020, Standalone might and seems like you have though tailing off a better biosimilar back then and international pharma, but not major U.S. Indian launches. So are those some of them either pushes and pulls off I'll be missing anything.
Let me give you the up for fall, probably but do you through to Q4, we remain very confident and you know.
We can go geography by geography that have already started to find drivers of this Q3, you floor crap, whether it's your battery in USA.
Mark I give relaunch our full flight and Axelopran performance.
Europe is being driven by products like Korean and I missed our roofing and our SAP and we see that so you know momentum behind these boroughs and Divestible blood, whether it's our RV portfolio Amitiza.
To be will end up OCTEON.
So we have map this vacant dnbi had been very confident about that now.
Black on spend I cannot it's not for us to comment on Biocon is a billion dollar plan. We have shared with you video lead the portfolio and go better so.
Blostein as spot.
A best in Biosimilar launch a herceptin, we have all wrong business Skus and we remain very confident behind that.
Okay.
And I guess the comment on 2020 is that look as we get closer to.
The normal time that we would speak to you about 2020, we'll look at the.
Long term lay of the land you know how close are we to the transaction.
Does it make sense to provide mylan standalone outlook or does it make sense to look at the new company together, but reality is at this point in time, we typically wouldn't start talking about the next year, yet and as we move closer to those days, we'll keep you obviously fully apprised of the Mylan numbers as well as the push and pulls and those.
[noise]. Good that's concludes today's Mylan third quarter 2019 earnings call and webcast. Please disconnect. Your lines at this time and have a wonderful day.