Q4 2019 Earnings Call
[music].
Good afternoon, My name is Kathryn and I Love Your conference operator today.
At this time I'd like to welcome everyone to the Mylan fourth quarter and full year 2019 earnings conference call and webcast.
Participants have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you like to ask a question at that time. Please press star and then the number one on your Touchtone phone.
And the interest of time, we ask that you. Please limit yourself to one question.
You need to ask further questions you may be intra they kill lastly, if you should need operator assistance. Please press star zero on your telephone keypad.
Thank you I'd now like to turn the call ever to Melissa Trombetta head of Global Investor Relations. Please go ahead.
You Katharine good afternoon, everyone welcome to Mylans fourth quarter 2019 earnings and 2020 guidance Conference call. Joining me for today's call our Marlins, Chairman, Robert Corey Chief Executive Officer, Heather Bresch, President Rajiv Midweek commercial Chief Commercial officer, Tony Mauro and Chief Financial Officer, Ken.
During today's call will be making forward looking statements on a number of matters, including our financial guidance for 2020, and the proposed transaction pursuant to which Mylan will become well combined with Pfizer Upjohn business in reverse Morris Trust transaction to creating new company.
That will be name to be a trust. These forward looking statements are subject to risks and uncertainties that could cause future results for events could differ materially from today's projections.
Please refer to the earnings.
The earnings release, we furnished to the FCC on form 8-K earlier today as well as our supplemental or inside all of which are posted on our web site at Investor Day, Mylan Dot com for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements.
Violent routinely post information that may be important to investors on this web site and we use its website address as a means of disclose immaterial information to the public any broad non exclusionary manner for purposes of the Fccs regulation fair disclosure.
In addition, we'll be referring to certain actual and projected financial metrics of Mylan and 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 as reconciliations of the non-GAAP measure.
Yours to those GAAP measures are available in our fourth quarter, and 2019 earnings release, and supplemental or inside as well as in the Investor section of our website.
Please note that this call relates to Maryland fourth quarter and full year 2019 Arena and we will be limited in what we can speak about cumin a regarding via trust as we will not be speaking about the up John business.
Let me also reminded of the information discussed during this call except for the participant questions is the property as Mylan and cannot be recorded or rebroadcast without mylans expressed written permission.
An archive copy of today's call will be available on our website and will remain available for limited time with that I'd like to turn the call over to Heather.
Thank you Melissa and good afternoon, I'd like to welcome everyone to what we expect will be the last four your earnings call for a mylan as a standalone company I'll be covering commentary regarding Mylans Q4, and full year 2019 performance Rajiv and Ken will provide additional detail about these results, including an update on pre integration.
And planning and we'll end our prepared remarks with commentary from our chairman Robert J. Foree. However, before we get to results I'd first like to things as Mylan employees, who maybe listening for their continued dedication and commitment to the customers and patients. We serve I would also like to welcome any up John employees listening to the call.
I wanted to take a moment to address the very serious matter of the Corona virus.
We've been in close contact with our colleagues around the world regarding recent developments on our following government and health organization recommendations that health and safety of our teams and their families as our priority and we're supporting those on the ground where possible.
Our business exposure in China, specifically is limited however, given the global nature of our supply chain operations and businesses our results could potentially be impacted the guidance. We disclosed today does not include any anticipated impact from Corona virus. However, we will continue monitoring the situation very closely from a bit.
Yes perspective.
Moving to our results 2019 was a strong year from islands, and the fourth quarter and full year Mylans businesses grew across all segments on a constant currency basis similar to last quarter. Our business transformation work continues to flow through our piano as we've previously shared our transformation work is focused on.
On unlocking latent value within Mylans organization, and delivering economic profit, while maintaining our commitment of providing access.
We started developing this plan in late 2018 and began implementation and earn US late last year in the fourth quarter. For example, we identified opportunities to further refine our S DNA and R&D spend focusing on products that are promotionally responsive as well as higher value portfolio investments.
Looking at our full year results Mylan delivered 11, and a half billion and revenue a billion on new product launches and 2.1 billion and adjusted free cash flow and exceeded our adjusted EPS guidance by 12 cents at the midpoint.
These results highlight the durability and stability of the business, we've created as well as our ability to withstand negative trends impacting the industry. They also reinforces the strength of our diverse portfolio geographic reach and global commercial and operational scale powerful levers that will live on through the interest.
Looking ahead to the full year of 2020 today, we also announced guidance ranges for total revenues of 11, and I have to 12, and a half billion and adjusted EBITDA of 3.2 to 3.9 billion.
Although we widened the ranges to take into consideration certain factors the midpoint of our guidance is in line with what we previously disclosed for 2020 in conjunction with the up John transaction.
Additionally, as we have previously stated on a go forward basis, we believe adjusted EBITDA to be the best measure of our company's underlying operational results entry business performance.
We're extremely proud of the efforts of our global workforce that enable us to sustain consistent business performance and profitability across all of our segment.
We continue to see unprecedented change in our industry. We believe we are setting a solid foundation to help position via trust for a strong future I'll now turn the call over to regime.
There are two Heather and good afternoon, everyone to begin I would like to take a moment <unk> My modeling police forces strong 2019 performance.
The other mention this golf has a unique sees it.
As it represents the last time, we expect buttafuoco or 40 units.
For Mylan as a Standalone company.
I'm extremely broke off was that we have accomplished together with the strong global business. We have today, it's because of the hard work out for employees. Modern this then position to combined with up John.
The new rules as batches.
I would also like local my top junk Willy Walker listening to todays call.
I could not be more excited about the opportunities that lie ahead and the meaningfully rule. We after this the play into future off of gift.
Our onset of <unk> global reach its flight networks will enable us to deliver high quality medicines to more patients Old Award.
And we will also leverage off platform, what girlfriend, Faulkner, who have ready access to expanded markets throughout view a unique global feels good.
Gave one it wouldn't be approaching and I'm pleased to report that we remain on track to blow than mid 40 40.
Why fly zone adopt John have been working together to ensure that up John is separated as plan my than has been walking with flies it enough John <unk> integration planning, we to focus on business continued to do for both organizations.
To build upon how those comments regarding business off for mission. It's important to understand that go we're pleased with regard to fix into consideration.
I mean, applying an economic profitability last fall, we invest every dollar across the business.
Our transformation program, it's a boat utilizing a highly disciplined approach to drive stronger dawn on old investments across all four businesses.
We're also looking at Goldman fracking their fourth club the optimized <unk>, which you know the man acquired capacity and efficiency.
This program gives us all right mindsets and up role is to manage that increasingly watertight and dynamic nature at all for business.
Turning to 29, <unk> total revenues, we delivered $11.5 billion, representing 3% growth on a constant currency basis.
These results reflect solid underlying business performance.
Given by existing products that generated double digit growth, including three on influenza Donna Amitiza and let them as you did 40 bed exam.
We also achieved our dog in a $1 billion in new product launches driven by Vic sell off with a lot and several other new products.
Or North America business Hotdog Luminex is of approximately $4.2 billion, which is it two orphan increase from the prior year.
Piece was driven by $800 million in you broke launches, which were partially offset by lower volume, including business formation of liquid product rationalization and to a lesser extent price erosion commodity genetics portfolio.
In Europe ordinary losses totaled approximately $4 billion.
Exempting two important growth on a constant currency basis.
Our key brands such as you know that Miss the anthrax drove this strong performance.
[noise] you noticed awards segments next is still approximately $3.2 billion to present to get it portion growth on a constant currency basis.
This increase was primarily the zocdoc, new product launches and increased volumes across the region, including key markets like Japan, Australia and China.
As we look ahead to 20 Goody, we've gone beauty to see rules being driven by the complex products Global key brands, and Biosimilar, which will help offset continued competitive pressures on or Commoditized genetics portfolio.
Overall, we expect another strong year, because approximately $600 million in revenue from new new product launches, which will have plus offset expected mid single digits, yet or do you have probably 2 billion.
Let me know walk you through projected year over year next year schools across all three business segments.
You know North America business, we expect low single digit growth last few different by you bellotti.
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We're also looking forward to the launch of several new products, including the mid year launch of insulin glargine.
We expect all yoder business to grow mid to high single digits.
This is largely driven by oki brands, such as pretty young in through Act I missed a Andrew friend.
We also going do you need to see opportunities to expand or biosimilars portfolio, which should be doing every julio SLS Philip.
Moving to the rest of the war, we expect to grow up mid single digit primarily driven by keep grants and Biosimilar school in such an expansion in emerging markets. These drivers will be partially offset by government Bryce Ducks in Japan, and Australia, that's the best standards I don't Yeah Reais.
I would now like to shift some key pipeline update.
Beginning with insulin Glargine as you know we have been step off you know efforts to bring to the market Im more affordable insulin for the millions of people living with diabetes, but on the water.
Sloppiest formulation patents have been flown to be invented.
This was a forum on upbeat.
Sanofi has also as you Duff on one device beaten that we have jet is in an ice you have for seeding and its before the district court.
We expect it to season and the IPO proceedings, My second quarter, and we are reading the try just this year.
Last week after you complete reduced pre approval inspection acquire quants insulin when factoring facility in Malaysia and issued a form 43, you could see observations.
Black on is responding to empty and are confident in that ability to fully addressed observations.
We do not believe that the inspection in anyway impacts our commercialization Plas Oh incident locked in U.S.C.
Also our biosimilar to invest and has been accepted for filing.
And is under the view with ft.
Our use of Beagle date is somewhat 47.
This year.
We also submitted or you had been obligation under its currently in the very vision speech be the authorities.
Lastly regarding S. Flopped, we remain on track for or U.S. submission in the next quarter.
And I got to means under contract for submission in at least what are your 21.
As I mentioned earlier this year, we initiated work on two new brand opportunities.
Starting with Amazon ones utilization is due to one.
We just being developed as a safe and effective non narcotic world and adjusting for the minimum adult moderate to severe pain.
The trucks novel <unk> formulation is being designed to potentially for white and auto when they do opioids and if it's too early to go study is being initiated this year.
The other products, we had we initiated the opened or B is known as Amar ones Ido 60 to one.
It's a novel syntactic anti microbial peptide, that's being developed or the topic of product for treatment of wounds, including one wounds.
I'll leave our lead clinical studies have demonstrated promising efficacy and safety in the treatment of patients with Washington thickness bone wounds, we up or Brady to any shoot for the clinical development. This year.
Finally, we are pleased to update that the Philadelphia the political city.
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This study is assessing the efficacy safety tolerability of letter, but assay to administer once a month [laughter] treatment golf relapsing remitting multiple sclerosis.
You did this study has been here this year due to 19 site and is actively enrolling patients.
We look forward to keep you informed obese development programs.
And with that I'll turn the call or to go.
Thanks, Rajiv and good afternoon, everyone I'll take a few minutes to provide an overview of our financial results for the fourth quarter as well as the full year 2019.
Fourth quarter 2019, total revenues of $3.2 billion were 4% higher than the prior year end inline with our expectations.
Excluding the negative impact of foreign exchange constant currency total revenues grew 5% with growth in all three segments.
The rest of World that sales grew 9% followed by Europe, and North America, which were up 5% and 3% respectively.
The increase was primarily driven by new product sales, including with cielo, partially offset by a decrease in that cells from existing products, mainly due to lower pricing across the regions.
From a segment profitability standpoint in North America declined 5% in the quarter, excluding cost associated with the Morgantown restructuring and remediation program.
This decline 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. In addition to inventory write offs related to certain product discontinuations.
Europe segment profitability expanded 4% in the quarter, reflecting the favorable impact of new product sales and higher volumes of existing products along with the favorable comparison from lower restructuring cost in the quarter.
Rest of World segment profitability also expanded 4% in the quarter as a result of the favorable impact of new product sales and higher volumes of existing products.
These favorable impacts were partially mitigated by lower gross profit on a RV sales, resulting from higher PPI input costs.
For the quarter, we reported adjusted net earnings of $721 million and adjusted EPS of $1.40, which were both above our internal expectations.
The year over year increase of 8% an adjusted EPS reflects strong segment performance and to a lesser extent lower interest expense and a lower effective tax rate, partially offset by the unfavorable impacts from foreign exchange.
Now for the full year total revenues of $11.5 billion were 1% higher than the prior year, excluding the negative impact of foreign exchange constant currency total revenues grew 3% with all three segments delivering year over year growth.
Consistent with our expectations new product sales for the year were approximately $1 billion with approximately $800 million coming from North America, and the remaining amount was balanced between Europe and the rest of world.
This growth was partially mitigated by the decrease in net sales from existing products as a result of lower pricing and volumes.
For 2019, our adjusted gross margins were approximately 53% compared to 54% in the prior year.
Year over year lower gross profit from sales of existing products was essentially offset by gross margins on new product introductions.
Moving onto a full year segment profitability, excluding cost associated with the Morgantown restructuring and mediation program North America adjusted segment profitability expanded 3% in the year.
This growth reflects contributions from new product sales, partially offset by impacts from lower volumes and to a lesser extent pricing on existing products as well inventory write offs related to product discontinuations and higher investments and SGN AG.
Primarily due to unfavorable impacts from foreign currency translation Europe segment profitability declined 6% and rest of world declined 5%.
In addition, both segments reflect the anticipated higher investments in selling and marketing costs and rest of World segment profitability was further impacted by lower gross profit on a RV sales, resulting from the higher apiay input costs.
Full year adjusted R&D of $516 million was down 9% compared to 2018 due to the reprioritization of global programs.
In 2019, adjusted SGN, a increased 4% compared to the full year 2018 reflected the reflecting the expected incremental investments and selling and marketing.
In addition, the prior year included the favorable impact of reversing certain performance based incentive accruals.
These increases in costs were part of partially offset by benefits from restructuring activities as well as business transformation initiatives.
We reported adjusted net earnings of $2.28 billion, and adjusted EPS of $4.42 for the full year, which was above the high end of our most recent guidance.
Excluding the unfavorable impacts from foreign exchange full year, adjusted EPS was flat to 2018.
Adjusted free cash flow for the year was exactly in line with our expectations at $2.1 billion, including the planned investment of more than $600 million a net working capital that was required to support the approximately $1 billion of new product launches that we've talked about.
Ongoing working capital velocity initiatives and lower capital expenditures, partially offset these investments.
During 2019, we delivered on our commitment to repay $1.1 billion of debt, bringing our debt to adjusted EBITDA leverage ratio down to 3.6 times at the end of the fourth quarter, which is in compliance with our covenant requirements and reflects our continuing commitment to our invest.
Great credit rating.
Now moving on to 2020 at a high level from island Standalone, We expect total revenues to be in the range of 11, and a half billion to $12.5 billion, which represents an increase of 4% at the midpoint versus full year 2019.
As Heather mentioned going forward, we're no longer providing adjusted EPS guidance as we believe adjusted EBITDA better reflects how we manage and measure the performance of the business.
We expect full year adjusted EBITDA to be in the range of 3.2 billion to 3.9 billion.
It's important to note that there are no material changes in our underlying Mylan standalone business assumptions compared to the Mylan financial targets that were provided in July 2019, when we announced the up John transaction.
Our current expectations do reflect the impact of foreign exchange headwinds experienced as we move through 2019, which resulted in the 250 million dollar reduction in the revenue midpoint and the $50 million reduction in the EBITDA midpoint.
Schedule reconciling. These numbers is included in the press release.
As you heard from Rajiv in our topline outlook, we expect positive volume growth along with the contributions from new product launches to more than offset competitive market dynamics.
Moving to adjusted EBITDA, we're expecting a positive contribution from sales growth driven by volume from existing products and new product launches, partially offset by pricing. In addition to higher SGN, a spending to support those topline expectations and higher R&D investments to focus on our complex product.
Pipeline, which will support the long term health of our business.
Moving to capital deployment on a standalone basis, our priority remains de leveraging we intend to repay approximately $1 billion of debt in 2020 on consistent adjusted free cash flow generation.
We remain fully committed to our investment grade credit rating and to further reducing leverage as we work towards our Standalone long term average debt to adjusted EBITDA leverage ratio target of approximately 3.0 times.
Finally, we anticipate lower interest expense, reflecting the $1.1 billion of debt repayments, we made in 2019 as well as the incremental debt repayments, we expect to make in 2020.
In addition, we expect our adjusted effective tax rate to be between 18% and 19% and we expect to diluted share count of between 516 million and 520 million shares.
Before I close a quick comment on Calendarization as you think about modeling the year.
We expect total revenues and adjusted EBITDA quarterly phasing to be very consistent with 2019 with Q1 being the lowest quarter and sequentially, increasing as we move through the year.
First quarter 2019, adjusted EBITDA represented approximately 20% of full year adjusted EBITDA, We expect the same and 2020.
In addition, we expect adjusted SGN as a percentage of revenue for the first half of 2020 to be slightly higher than the second half due primarily to the calendarization of revenues.
Similar to 2019 first quarter 2020, adjusted free cash flow is anticipated to be the lightest quarter of the year as we invest in the working capital required to support new product launches, but as far as you've noted new product launch revenues in 2020 are expected to be approximately 600 million dollar.
Others or $400 million lower than 2019.
Therefore, we expect a lower front end that working capital investment, which will ultimately put less pressure on first quarter free cash flow.
With that I'd like to turn the call over to Mylans Chairman Robert Corey Rob.
Thank you Ken good afternoon, everyone.
To echo the comments of our management team I too would like to personally thank our dedicated mile and colleagues for their continued outstanding execution and commitment.
And to once again welcome to the upshot colleagues as well who will be partnering with us as we transition into Beatrice in the near future.
I would also like to share how much our hearts go out to those impacted in China and across the world.
And ladies occurrence Corona bar situation.
We will continue to do all that we can do to help mitigate this serious health issue.
As for the potential company impact and as Heather has mentioned, we like others are closely monitoring the situation.
Though it is too early to predict any commercial impact to our operations around the globe.
I am pleased to share.
That we have already achieved numerous milestones on our path to create and Beatrice the combination of Mylan enough John a new champion for global health.
As you saw this morning in our press release, we have now announced the remaining members of the Beatrice Board of directors.
With these appointments at the Beatrice Board level, we have assembled a world class board of directors with extensive experience knowledge and strategic vision to help guide the company and to unlock greater shareholder value.
In addition, this morning, we announced up John CFO.
Sungy Narula, who will become via trust as CFO and will join Michael and regime on the management team.
Sungy brings exactly the right profile, given where the new company will be in its first business lifecycle upon closing.
I've had the privilege to spend a great deal of time directly with Sanjeev over the past several months.
The strength in operations and his understanding of the pharmaceutical industry as well as up John will prove to be invaluable.
His deep rooted experience at Pfizer, which includes significant accomplishments in the process optimization and automation capital allocation internal and external reporting makes him the right fit to help ensure via trust delivers on its opportunities and commitment to creating shareholder value.
Additionally, his significant knowledge of Pfizer and upshot will be extremely instrumental as we continue to integrate our two companies and managed to numerous business critical transition service agreements, we will have with Pfizer in the early years of the interest.
We are fortunate to add him to this season management team.
In other milestones we've received regulatory approvals in certain key regions, including approval from the state administration for market regulation in China.
And we recently set the extraordinary general meeting of our shareholders should be held on April 27.
In short we continue to progress every day and remain on track to close the transaction in mid 2020.
Our goal remains to build a new and even more robust in integrated global health care platform ones that will be balance between returning capital to shareholders and investing more in innovative segments of the industry's value chain, while maintaining our core commitment to improving patient access to medicine.
It's around the world.
With this.
As our focus and together with strong and consistent execution and delivering results I continue to be very excited about the incredible value creation opportunity. We expect for shareholders. As a result of this combination.
To be clear.
Beatrice will not be a mylan 2.0.
This is via tourists 1.0, which will benefit from the many additional opportunities not presence within either mylan or up John on a standalone basis.
As we continue to progress towards closing in the years beyond.
I have been well aware of all of your continued interest in receiving more clarity on what are the what actually is the starting baseline financial targets for Beatrice's first full year of operations and 2021.
As I shared in the last quarter conference call.
And at the JP Morgan Conference.
I believe I have been very consistent and my focus for Beatrice and 2021, its first full year of operations.
We expect that the formal guidance will be delivered to you buy beatrice's New management team led by Michael Rajiv and Sungy at the close and at the appropriate time after the transaction closes.
You can expect it the management team will of course be taken into consideration.
All the known as well as potentially anticipated headwinds, whether it's the changes in China's health care system, which somewhere call them to China reset the upcoming lyric and celebrex loss of exclusivity in Japan and any other what if at that time.
Simply put.
You should expect it to be interests management team to deliver a 2021 baseline.
Represent a trough year from which the company can grow from.
Looking ahead beyond that the interest will be create a new global and unique global health care Gateway, which will offer many other biotech and spec pharma companies ready access to markets around the globe by leveraging our true one are becoming global infrastructure Macon via Trish.
The true partner of choice for players often facing challenges and utilizing multiple local or regional partners.
We envision beatrice's unique global health care Gateway Department to leverage our already existing enhanced scientific successes to date with our own research and development capabilities as well as those future opportunities, we expect to realize from the Beatrice's Global health care gateway partnering opportunities.
Two more rapidly broaden our own product portfolio and future pipeline.
Including new business models to once again give the street confidence and beatrice's ability to grow.
These are just a few the additional growth opportunities not present within again, either mylan or up John on a standalone basis.
I would like to conclude by sharing what I mentioned at the JP Morgan Conference last month.
We believe that Beatrice with its new and unique profile will be recognized for being at the forefront of establishing a new kind of global pharmaceutical player designed for where the healthcare industry is going.
Not where it is there.
And I'm extremely excited about the opportunities ahead for the company and the value opportunities the Beatrice can't create for its patients employees customers shareholders and all stakeholders.
With that I will now turn the call over to the operator to start to Q and a session. Thank you.
At this time as you might ask your question. Please press star one on your touched on time.
Please turn now to yourself from the key you may do so by pressing the pankey.
In our mind teach please pick up your handset and please limit yourself to one question.
Your first question comes from the line of credit shop with JP Morgan.
Hey, guys. Thanks for the questions here I'm, just maybe a two part one here first on the 2020 EBITDA guidance for Mylan Standalone, just a little bit more color in terms of why we're seeing a wider range to that EBITDA guidance is there less visibility on the business than there was a few months ago, which give us a little bit more color.
We're on what the swing factors are that could leave us with either the high end or for low end of that range.
And then the second question Robert you talked about 2021 being kind of a trough year for the company in a baseline to grow off of.
With that comment, it's not referring to EBITDA as they're referring to sales or is that repeatable sales and EBITDA just trying to get a sense of how should we think about.
That that year.
Yeah. When do you find trough what are what are we thinking out there. Thanks so much.
Yes, so Chris Thanks for the question EBITDA range. So we clearly provided a a a set of numbers in July that had a midpoint on the EBITDA of about $3.6 billion, we move through our rough second half of the year that our full budget analysis. We are we have made no changes.
That midpoint other than the impact of FX, but as you would expect when we started a year in a very dynamic industry that has a lot of moving parts. We start the year like we did last year with a wider range that we fully intend to narrow around that midpoint just as we did in 2019, So there's no subtle message.
You are inherent message about widening the range other than that we're starting the year when we fully anticipate to keep that number that we showed you as of the midpoint right in our focus.
And Chris Thanks for the question.
I would say that you are mainly talking about revenue and EBITDA.
Certainly focusing on to maintain.
Hi, EBITDA margins that we have.
I, we're going to spend an awful lot of time and very very anxious to get to this close so that management really has the opportunity to not just look at 2021, but look actually beyond that to ensure that 2021 truly is the trough year.
You only have one time.
Reset this is our opportunity to reset and we at the board level want to absolutely make sure that management starting point has the best chance not just the meat, but even to exceed so that will be the focus that we have.
And management as I said, we'll come force at the property I want to actually give you the actual guidance.
Your next question comes from the line of Randall Stanicky with RBC capital markets.
Great. Thank you Rob given that 2021 is the trough year, there's been a lot of focus.
From investors around what beatrice's can be able to grow at off of that trough year. We know the mylan business. It's backed by pipeline, we understand that as you think about the upshot in the branded business going forward. How do we think about that growth I mean, obviously, there's some geographic opportunity. There's some beat business development can you just.
Touch on are you get a build out a branded R&D capability and how should we think about you investing behind that part of the business and how do we think about that growth off 2021. Thanks.
Thanks, Randall and.
Yeah, I really think Directionally you have been doing a really good job telegraph it.
I think the trajectory of where via trust will where it will be situated when it starts.
And the opportunities going forward. So I do appreciate the opportunity for meta.
Embellish.
I do think that the there will be opportunities for revenue the starting point of revenue.
I I think that whatever that starting point in revenue is.
Some of you have directionally already picked up that the EBITDA, we have many levers to I think maintaining a strong EBITDA base.
We do intend on reset in D. the revenue base.
And I do believe that there will be up.
An opportunity to grow I expect that management I would like at the very minimal for them to be able to provide a three to five year K GARP, both on topline and on EBITDA and I think that we'll be able to deliver that in terms of what the trough year is over to three to five year.
A timeframe and then I do believe against something I think you've been up front. This creation of this new global health care Gateway I have to tell you. This has been in the works since 2016 for us.
And the only reason why we did an announced this before.
I mean, obviously, if you saw what we were tied up with.
In 2016.
With the whole Epee pen situation and I think the street really really Miss the opportunity in 2018, because we were drowned out by all the noise, but it was the best year of science in Mylans, almost 60 year history.
And as you could see not only did we can not only do we build a robust pipeline, but even some of the commentary that Rajiv made today the three opportunities that we have in our pipeline.
The reason why we couldn't fit you actually announced the global health care Gateway that's been underway since 2016 is because without the upjohn business and without really Havent critical mass in China, you really can't make that claim we were simply dabbling in China, but up Sean gave us the critical mass.
Yes, so we will be build and not an official department that will actually be in charge it'll be that department will be led by the new CEO Michael Guettler. He will be driving that global health care gate get gateway and I believe that all future capital allocation and all the disciplines that now.
Need to be around future capital allocations will be within that global health care Gateway you can fully expect that our internal R&D business development.
We'll be in very very much competition of capital going forward against continuing debt repayment or share buyback or any other opportunities that we would have but I do think that we have a number of levers and I'm really excited once we get to close this it really established the department of the global Health care Gateway I do think that we.
We'll be recognized as partner of choice and represent a real unique opportunity to bring ready access to other spec pharma companies to bring their products around the globe.
Your next question comes from the line.
<unk> with Evercore.
Hi, Thanks, so much for taking my question Robert I know the word trough for 2020 ones come up a few times.
As I think through the possible levers on top line into next year, it's not very hard to get to a topline number for the pro forma company that might be around 18 billion or so.
So am I am I on the wrong track there and also if we were done nothing that's an area like that you think the cost levers can help you deliver the same EBITDA as you initially.
Announced at the time of the transaction. Thank you very much.
Well I want to be careful or because I also think you were leader.
Front.
Doing a lot of work extensive work.
I think you are directionally, absolutely I think you've been probably directionally, most correct quite frankly, and again I don't it's not that I'm, giving guidance here I do think that there'll be adjustments on both revenue and EBITDA, but less on EBITDA because of what you said because of the let's not forget the billion dollars of synergy.
Please let's not forget about the transformational work that's being done let's not forget about some of the other opportunities that we see and we're currently even you know I know Michael and Sungy, we're doing work on their side trying to identify some of the transformational opportunities even within upshot. So I.
I think that you're not actually.
Off track I think you've been kind of sort of spot on and I think thats. The way others, you know directionally should be.
Looking at it I think you Randall Chris there's there's been several other analysts that I think have now been trying to understand 2021, and I want to make sure. It's a trough year I worked with that's why I think we need to go out to 2022, and we don't want to say, it's a troughed here and then you know set the numbers in a way where there is.
Another step down we've seen others do that in the sector and we saw the punishment that they had a pay as a result of it. So again, you only get onetime to reset I want to bring as much clarity as we can or have management brings much clarity as they can add and at the proper time when they give the guidance I'm sure there'll be a lot of this.
Gosh and with.
The new reset of 2021 will mean and the growth opportunity from there going forward.
Your next question comes from the line of Gregg Gilbert with Suntrust.
Yes, Thanks, Ken I was hoping you could comment on free cash flow outlook for 2020, and whether or not as includes any benefits from new restructuring program and then I was hoping Rajiv I could ask you about Biosimilar is what would have you learned in recent times about what happens to net price in the Biosimilar space. As addition.
No entrance launch as compared to what has occurred in the.
The past with a small molecules and how would you characterize your early Biosimilar pipeline are you working on pro product set.
For which markets won't form for Biosimilars until five or 10 years from now maybe some color just on how early you're going in terms of playing offense on biosimilars. Thanks.
So Greg I'll start with a free cash flow question in the prepared comments.
As we've talked about 2020, while we're giving you guidance on EBITDA specifically.
I also specifically mentioned and it's worth reiterating that we think that 2020 free cash flow will be relatively consistent with what you saw and what we've experienced in generated in 2019.
Many of the drivers within that are we're starting to see some of the benefits from the transformation initiatives, but I would also point out just like we pointed it out for 2019 as well as 2018 that we continue to work on working capital velocity improvement initiatives we were.
We've reduced our days working capital by probably six or seven days over the last couple of years. Each day is about $40 million to Mylan and so you can imagine each day that we're able to organize the business around reducing that working capital requirement gives us another dollar or in this case $40 million per day to invest in there.
And this and cow and redeploy the capital appropriately. So the simple answer as effectively the same cash generation in 2020, supporting the new product when new product launches, but always focusing heavily on working capital improvements.
[noise], so Greg I'm going to give you a little bit about the pipeline opossum doesn't Tony will embellish on the market dynamics with me.
Plus some notes will continue to be one also go travelers as we go along and transition into where that so now you are we at all for existing pipeline residents idea or as block and fall onto incident.
You are aware off fall.
Our finding and use a you know were gord data up to some liquidity sound bar a best in but beyond that we had looking we also have for Europe redox, you map and Ambrose Biosimilars, which will be most likely.
Got it grew the market this year and plus that if you recall, we had our partnership with momentum was.
Let me.
Bizarre, but give our molecules like orange up Raleigh, I'd still out there some of it.
Those programs out in video at least did but we also extended or black on relationship.
To include for Jetta asbestos with you so and we you can lead us to shield, we continue to look for more opportunities around this and shared with you as we go along Tony no. Thanks, Rajiv and Greg maybe just touching upon your question around Biosimilars and that pricing I would say each market has their own.
On unique capabilities certainly there's markets that are focused on tenders, others that require physician generated demand. It really comes down to the cost to develop the services required from a patient perspective in the hybrid approach from physician detailing to working with hospitals and pharmacies that really generate.
Thanks that best that best mix and I'm very excited about you know the Biosimilars, we haven't our portfolio today and certainly the pipeline we've outlined for the future as well.
Your next question comes from the line of Jason Gerberry with B O <unk>.
Hi, Thanks for taking my questions.
So I was hoping you can comment on your supply chain and contingency contingency measures in the event I guess could the Corona virus leads to production I guess slowdowns in China. So what proportion of your Apiay and key starting materials are sourced from China. If you think about issues that could emerge if there.
As a prolonged.
Work impact there is it more about rise of Ipi cost that you get hurt by or is it potentially your contracts with distributors, where there could be.
Year to supply penalties or did those contracts give you some flexibility in crisis situations like such thanks.
Thanks, Jason.
Just start off obviously as I think the impact of this virus is changing by the day I mean, our first and foremost consideration right now it's just the told on human life and having a global workforce as we do we're trying to.
Take any precautions and as I said in my script follow the World Health organizations recommendations, so kind of first and foremost given where we are at this moment and what we know that's been where our emphasis and said that as we said, we're certainly watching and monitoring the business aspects of Sachin. So regime do you want to.
You know look from slide 10 point of view lightened up hole industries in one way or other we.
Connected with China, but you would expect us to be much better place because the look backward integration and very diversified bill.
Like in an accident diversified.
Let's look at all or top 2025 products, which we are not.
Relying on China at all but when it comes to all to eat the ice we have not only backward indecision, but we have also some automate jewelry anyway, but we don't see I think you play look forward I don't see any impact in though very near future bucket. This situation.
Persist and continuous bought another few months debt can be impact more I'm concerned from truck Sharpish point of view not much from the pricing point.
I think the only thing I would add Jason this is Rob.
As I don't think because I've read some reports where some analysts may think this affects you know certain companies more than others.
I have to tell you and in our industry I don't believe Thats the case, because because we do both <unk> and because we do rely on intermediates.
All apiay all apiay producers rely on intermediates all in a lot I mean, I think it's well known that most of the intermediates do come from China. So all apiay suppliers are going to be affected not just mylan, we've been fortunate to vertically integrate and have a lot of our own a pie, but we still need to get the intermediates and even.
Some of the pie that we have we may sell some of the third party, we buy some from third party so because the.
Guitar spec and generic industry is kind of sort of connected so to speak.
It comes at the Apiay intermediates, I think whatever impact there's going to be it's going to be a broad impact and not particularly any one company already either.
Your next question comes from the line of Ronny Gal Bernstein.
Hi, congratulations on the and the fine quarter and thank you for the time and taking my question.
I'd like to if you don't mind try to stick to here one of them you've mentioned the intermediates. So manufacturing and you also mentioned that you had an increase in fact across going into your HIV products. I was wondering if you can tell us more broadly are we seeing an intermediate price increase will this impact the generic industry in 2020 given.
Hi, please concerns about product shortage are you factoring that in is that one of the arguments for broadening the range of EBITDA.
And second on on by similar but.
If I look at about similarly, adoptions off off late end to end product, they actually look quite quite quite low.
For all the companies that enter can like second wave you have couple of products, which are entering said in a way of or supply coming on line.
After the market have voted for on.
Is your impression that into by someone markets you can catch up or are we really in a market, which is somewhat similar to the generic market in years past.
The earlier players are inherently going to capture the vast majority of the profit pool.
Okay all right.
So let me just stopped with died in the first equities in the intermediate listen.
I don't believe at this point of save weekend.
We see anymore.
Inflation from the pricing point of view that there will be up at this point of here and I'm going to say that and Robert talked about intermediate we were fortunate to back we're going to date.
A lot extent, even from will either be here. So a lot three four years looking into the volatility of supply from China, we focus on de risking that supply and create alternative.
So even on an up but I would tell you is still a couple helping to meet yes, we still underlying heavily on China, but so far we have not seen.
Dave issue from the pricing point of view, we are seeing logistical issues, you're not seeing a disruption I'll from them not being able to you don't produce so what does that not so you want to go acquire presumably the only thing I would add to Ronny I would like to tell you that before this whole corona virus situation.
We have experienced significant increases in some of our 80 I costs last year and actually quite frankly, probably within the last year and a half to two two years. So we have already experienced price increases as Rajiv mentioned I think there should be a bigger concern on shortages rather than pricing.
Yes, and so.
So I think we have much we're not we have first of all from Lifepoint of Omega comes on these from five point of view that when we need to acquire when that might be a disruption, but we still amongst all other because we've got still much better backward integrated and have a little or no other options.
Coming to the Biosimilars you're right.
But I hit anti how's he and I will like to need to add up if he wants to add up anything I don't think that if you are not in the plus so you know plus our second wave plus the first wave it should be an issue and you saw it in a good example is on flow Flub, Ed we had some supply constraints, we launched ahead.
And you didn't you got caught up pretty well, so and no and but it does take time just by the because of the unique nature of this business and the channels.
So we are very optimistic that once we have 19 was yet for us to fix the portfolio from flight perspective, which we had fixed now an awful lot fixed dollar.
It gets up.
Get the customers our market share between neat belief yeah, maybe just just add quickly I think once again, depending on the market certainly the tender market you have equal opportunity to compete regardless of the wave and end markets like the U.S. in particular and the oncology space. There are reimbursement mechanisms that actually can help the new entrant to the market. So.
I think as Rajiv outlined 2019 was your about very focused very surgical approach to these customers 2020 year of expansion in our business and these products in all these market. So I do think you have an opportunity to play no matter where Europe.
Your next question comes from the line of it David Risinger with Morgan Stanley.
Yes, thank you very much.
So I just wanted to ask a high level question first Robert about the evolution of generic markets in.
Europe, Ben emerging markets in Asia, So overtime it seems like generics evolve from branded to then branded generic and then ultimately generic generic.
Could you speak to how you see mylans opportunity to capitalize on that trend longer term given the footprint that up John has particularly in an emerging markets in Asia and then second just a very minor question, which is matterson had talked about.
The opportunity to move bio similar botox forward I think fit the comment was on the third quarter call, but if you move it forward it could be something that you could commercialize by 2025 could you just give us an update on your development plans there. Thank you.
As you take Botox for is gone and I'll hit the second one.
So David Thank you for Botox. If you recall, we had told you that we had a meeting with FDA last year, which will then formed a biosimilar plop wave to be a viable pop there.
And.
We have Oh, we have beat up we have a deadline in April thirtyth, who basically extend our relationship with thereby.
Even today, we are working with them very closely to be a you'll evaluate some more data vessel that we can be very sure that we have a viable product.
If that if we go ahead, yes, we'll be able to launch it before 2025.
David I think you actually asked a really good question.
At a high level and I think you're spot on in the.
Natural progression, especially started in Europe.
Where you had brand, which day call ethical drugs, and then brand generic.
And then generic but what I and so we've discovered this and have been operating in that environment with all three.
And of course, we also discovered the importance of both T C.
Which we added data on.
Because each one of these markets.
David are actually driven by a different priorities scheme some markets are actually.
Driven by generics.
Some markets are actually steel driven by brand.
And most markets except branded generics.
And believe it or not OTI see has its.
Advantages just because of the you know the the relationship but that the LTC rep has with them.
Pharmacies, it's a little bit different then when you are regulated both either in the Brent or the generics. So I would tell you when youre, there's actually still quite a bit of especially central and eastern Europe, I wouldn't say that a.
Generics or has taken the kind of hold yet that.
We believe that it will eventually tag, but it's that learning that we have and what we've lived.
Youre and where I think your insightful is that would you think about what upcharge, bringing to the table they have yet to experience quite frankly.
You know what it's like to go from a brand maybe brand generics, but certainly not generics. So I think the skill set that we're going to be bringing them to the emerging market opportunities that we have I think that will be one of the upside synergy values that I expect that we're going to getting what we bring to two organizations together Ghana regime.
Something especially from a modeling bought lock is part of the most of the emerging markets odd branded genetics market I'm, not genetic kinetics markets and Thats, where the infrastructure up John will flow. There was a you'll get a in these markets will help us get more market share.
Critical mass in these markets what up John Doesnt bring is what Mylan move for white is the portfolio. So we already have.
A significant portfolio and a pipeline, which can be drop in these markets and hopped on that provide us that extended.
CS force and commercial infrastructure, but I think I think Rajiv also it should be noted.
There is honestly there is a real different skill set between a brand rep.
In a generic rep.
And I have to tell you you know one the brand rep. It's just a different mindset the generic rep.
A little bit more scrappy quick on or feet, you know dealing with a very volatile highly competitive environment. It's really the mixture of both of them dependent upon.
You know what markets were operating in that we intend on Poland, the strength from both and as Rajiv mentioned.
We're really looking forward to the skill set of the up John reps.
Some of those markets that we just didnt have presence and if we had a build that presents it would have taken us time and that's what I meant by the up John transaction never change the trajectory of our strategy.
Simply accelerated it at least by three to five years.
Operator your last question comes from the line of the Elliot Wilbur with Raymond James.
Thanks, Good afternoon, just switching gears and going back to performance expectations for the Mylan stand alone business. Just wondering if you could provide a little bit of color commentary on expected margin trends in each year reportable segments, North America Europe rest of World I would presume that given you're expecting topline growth.
In each of those.
So should be reasonable to assume.
Margin expansion as well on.
Segment basis, but not certain to that necessarily in the North American segment, I guess, given the importance of some of the partnered products to a new.
Product revenue expectations in 2020, so just maybe a little bit of a commentary on a expected margin performance in each of those segments. Thank you Charlotte. Thanks for the question look I think I'll start just also and take you back to the fact that you'll see in the press.
For release that we've included some discussion that's not in any way intended to be new discussion, but for the last 12 to 18 months, we've been talking about the fact that you know we're really looking at the right trying to find the right measure that we can talk to you about about that is consistent with how we talk about the business internally and that's why we're move.
Moving to an EBITDA measure and it gives you some of the background for that.
In doing so what I also want to point out is that comes out a lot of the transformation work that we've been doing over the last year, plus and when I. When I give you a little bit of color about that transformation work. It will help you to understand why were maybe not giving as much specificity around gross.
Margins versus SGN, a rates because in that transformation work, we're really looking at.
Economic profit on each one of our products in all the segments and all the businesses and all the markets around the world and in doing so as you can imagine each product has a different gross margin profile.
Depending on the nature of your just started the discussion on the previous question around how the product is either marketed or represented or how much support it has to have for it whether it be.
From a sales person or from a tendering process. It may have a different SGN a rate the what we're really trying to look at as we're trying to look at the bottom line.
Operating margin EBITDA profitability on each one of these products now that said I will tell you that we don't anticipate significant movements in our gross margin rate from 2019 to 2020 or significant movements in our SGN a rate from 2019 to 2020, but we want to train.
In addition, and help you transition to thinking about the business. The way that we think about it which is bottom line operating profitability on each one of the products that are in our portfolio because that's how we're making decisions around the business today.
Right before we close the line.
I just like the.
Say one thing.
A lot of shareholders have been requesting.
Time, with Michael and now obviously going to be with Sun Sungy.
And I can't expressed to you enough how excited and anxious we are to put a.
Michael and regime and Sanjiv in front of all of you.
I would only simply ask for your patience.
Because we are dealing with in a highly complex integration.
I just like that reminds you that you know Pfizer was right in the midst of separating this business they were probably only about 25 or 30% into their separation.
And when Mylan came along so you know when you're doing a transaction like this you know it's it's not a typical merger. This is a reverse Morris Trust, where you do have three parties here. So there is the amount of work that is being done and why it's taking a little bit longer then maybe a typical transact.
And its extensive and I can't even begin to tell you daily weekly we gets the you know the amount of time that people are put an end to make sure that we are in a readiness smoke from day, one now with that said.
I will tell you that if you will just be patient.
You know, we will have Michaels said jeevan regime get around to shareholders more for more than offer really anything else, but a meat in Greece, I would say a get to know I'm anxious to have them meet together with all the analyst with some of the shareholders I think that would be.
A proper, especially even before they come and even give the guidance. So that you kind of get to know the individuals.
I think we have a really good team I have to tell you. It's taking some time to really pull together and coalesce. This management team they are tight.
They are aligned.
I think that they get stronger by the day by the weekend again I just ask I want to acknowledge your desire, but I would ask for your patience and up we will get around to you as quickly as we possibly can thank you.
This does conclude today's mylan fourth quarter in full year 2019 earnings call and webcast. Please disconnect. Your lines at this time and have a wonderful day.
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