perrigo co plc (prgo) earnings report: q2 2015 conference...

CompanyName:PerrigoCoPLCCompanyTicker:PRGOSector:HealthCareIndustry:Drugs

EventDescription:Q22015EarningsCallMarketCapasofEventDate:28.16BPriceasofEventDate:189.65

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

PERRIGOCOPLC(PRGO)EarningsReport:Q22015ConferenceCallTranscriptThefollowingPERRIGOCOPLCconferencecalltookplaceonAugust5,2015,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ArthurJ.Shannon;Perrigo;VP-IR&GlobalCommunicationsJosephC.Papa;Perrigo;Chairman,President,CEOJudyL.Brown;Perrigo;CFO,EVP

OtherPart icipants

LouiseChen;GuggenheimSecurities;AnalystRandallS.Stanicky;RBCCapitalMarkets;AnalystSumantS.Kulkarni;BankofAmericaMerrillLynch;AnalystDavidW.Maris;BMOCapitalMarkets;AnalystMarcGoodman;UBSSecurities;AnalystGreggGilbert;DeutscheBankSecurities;AnalystLindaBoltonWeiser;B.Riley;AnalystElliotWilbur;RaymondJames&Associates;AnalystJasonM.Gerberry;LeerinkPartners;AnalystAnnabelE.Samimy;Stifel,Nicolaus&Co;AnalystEmilChen;MorganStanley&Co;AnalystJamiRubin;GoldmanSachs&Co;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning.MynameisKayla,andIwillbeyourconferenceoperatortoday.AtthistimeIwouldliketowelcomeeveryonetothePerrigoCompanyPlcSecondQuarterCalendarYear2015ResultsConferenceCall.Alllineshavebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarkstherewillbeaquestion-and-answersession.(OperatorInstructions).

Iwillnowhandtoday'scallovertoMr.ArtShannon.Pleasegoahead,sir.

ArthurJ.Shannon (VP-IR&GlobalCommunications):

Thankyouverymuch,Kayla.WelcometoPerrigo'sSecondCalendarQuarterEarningsCall.Acopyoftheearningsreleaseweissuedthismorningisavailableonourwebsiteatperrigo.com.Alsoonourwebsiteistheslidepresentationforthiscall.AsyouknowPerrigobelievesinbeingtransparentandopentoourinvestors.Followingtoday'sconferencecallwewillbeactivelyreachingouttoinvestorsoverthenextfewweeks.

BeforeweproceedwiththecallI'dliketoremindeveryonethatduringtheprocessofthiscall,managementwillmakecertainforward-lookingstatements.PleaserefertotheimportantinformationforinvestorsandshareholdersandSafeHarborlanguageregardingthesestatementsinourpressreleaseissuedthismorning.Followingmanagement'sreviewofthepresentationwewillopenupthecallfor




questions.

I'dliketonowturnthecallovertoPerrigo'sChairmanandCEO,JoePapa.

JosephC.Papa(Chairman,President,CEO):

Thankyou,Art,andwelcomeeveryonetoPerrigo'sSecondQuarter2015EarningsConferenceCall.AlsojoiningmetodayisJudyBrown,Perrigo'sExecutiveVicePresidentandChiefFinancialOfficer.

ForouragendatodayfirstIwillmakeafewcommentsonthequarter.NextJudywillgothroughthedetailsofthesecondquarterresults.ThenIwillgiveyouanoverviewofourrecentsuccessinbothstorebrandandprescriptionproductapprovals.Andfinally,reiterateourpositiononMylan'sunsolicitedoffertoacquirePerrigo.Finally,youwillhaveanopportunityforquestionandanswers.

Beforewegetintotheagendahowever,I'dliketostartbythankingPerrigoemployeesfortheirdiligentfocus,whichhasledtoadjustednetincomegrowthof37%.Evenwithallthenoiseyou'vebeenfollowingoverthepastfewmonths,ournearly13,000PerrigoemployeeshaveannouncedthreeM&Atransactions,deliveredonourOmegaintegrationplans,achievedgreatoperationalefficienciesandproductivityimprovement,executedonournewproductlaunches,anddeliveredonourBasePlusPlusPlusstrategy.It'sgreatworkbytheteam.

Nowlet'sdiscussthequarter.Onslide4youcansee,despitesomechallenges,thisisaverystrongquarter.Ourquarterlyperformanceishighlightedbysecondquarterrecordnetsalesofmorethan$1.5billion.Wealsoachievedrecordadjustedgrossmargin,recordadjustednetincome,andrecordoperatingcashflow.

OurConsumerHealthcaresegmentgrewadjustedoperatingincomeanimpressive18%comparedtolastyear.Infactourconsumerfacingrevenuesnowrepresent75%ofthetotalPerrigocompanyrevenues.

Movingontoslide5youcanseeconsolidatedPerrigogrewthetoplineby34%.ThisisdrivenprimarilybytheadditionoftheBrandedConsumerHealthcare,orBCH,segmentsalesandtherecordsecondquartersalesintheRxbusiness.

Newproductscontributed$149million,comprising$116millioninlegacyPerrigosalesand$33millioninourOmegabusiness.Youalsoseethatwecontinuedtoinvestinourfuturethisquarter.Weinvestedover$44millioninR&Dtocontinuetosupportourstrongestnewproductpipelineever.I'dliketohighlightthatevenwithstrongR&DinvestmentsinourlegacyPerrigobusiness,supplychainandmanufacturingefficienciesandfavorableproductmixallowedustoachieverecordsecondquarterorganicadjustedoperatingincome,whichimproved11%overlastyear.

Judywillgiveyoumoredetails,butletmehighlightafewitemsfromthebusinesssegments.Ourconsumerfacingbusinesssegments,bothConsumerHealthcareandourBrandedConsumerHealthcaresegments,hadcombinednetsalesof$1.15billionthisquarterwithadjustedgrossmarginsofnearly42%.Theircombinedadjustedmarginswerenearly--operatingmarginswerenearly21%.Newproductsfortheconsumerfacingbusinesseswere$110millioninthequarter.

Inthequarterwewereabletorealizegross--positivegrossprofitmarginimprovementfromnewproductsnetofdiscontinuedproducts.

TheglobalizationandscaleofourconsumerfacingbusinessplatformprovidesexcitingnewopportunitiesforPerrigo,asevidencedbythethreerecentlyannouncedacquisitionsinourconsumerbusiness.

First,weannouncetheacquisitionoftheMexicoPatheonsoftgelbusiness,whichclosedinMay.Perrigohaslongdesiredtobeaprimemanufacturerofsoftgelproducts,andthisacquisitiongivesusourentry




point.

Second,weannouncedtheacquisitionofbrandassetsfromGSK.Thisportfoliogeneratedover$110millioninannualsaleslastyear.Andwiththereturninthenicotinelozenges,weexpecttogrowthosesales.

AlsoweannouncedtheacquisitionofGermany'sleadingdietarysupplementbrand,Yokebe,whichismarketedasamealreplacementproductandiscurrentlythesecondlargestdietarybrandbymarketshareinGermany.WeexpecttocloseboththeGSKandtheYokebetransactionsinthethirdquarter.

WiththerecordadjustedoperatingincomeinourConsumerHealthcarebusiness,thestrongperformanceofourrecentlyacquiredbePan-EuropeanOmegabusiness,andtheserecentlyannouncedtransactions,whichboltonverynicelytoourexistinginfrastructure,I'mexcitedbythefutureprospectsandourmegatrendinthistrulyglobalconsumerbusinessplatform.

Asyoucanseeonslide6,newproductswilldriveourfuturegrowth.ExcludingtheimpactofOmegaweexpect$1billioninnewproductlaunchesoverthenext3years,representingmorethan$3.6billioninnationalbrandsales,highlightedbythelaunchesofNasacort,Flonase,theMucinexfamily,plusmanymore.

AlsojustinthelastweekwereceivedthreeANDA'sapprovals.First,wejustreceiveFDAfinalapprovalfortestosteronetopicalgel,1.62%.Second,wereceivedFDAfinalapprovalforibuprofensodiumtabletANDA,thenationalbrandequivalenttoAdvilfastrelief.AndfinallyreceivedFDAapprovalforomeprazolemagnesiumtablet,theequivalenttoPrilosecOTC.Thisisthefirstandonlytrulyequivalentgenericproducttothenationalbrand.ThankyoutoourR&Dteamfortheexcellentwork.

OurRxsegmentonceagainachievedrecordresults,growingsales10%witharecordadjustedgrossmarginof65%.NewproductsalesinthequarterweredrivenbythegenericversionsofclobetasolsprayandourABratedAndroGel1%,bothofwhicharepowerfullaunchesinourRxbusiness.Adjustedoperatingmarginswerestronginthissegmentevenasweinvested$20millioninresearchanddevelopmentandcontinuedmakinginvestmentsinourbrandedRxsalesteam.CongratulationstotheRxteamforanotherstrongquarter.

InSpecialtyScienceswehavebeenverypleasedwiththemarketperformanceofTysabri.Itisagreatassetthatisgeneratingterrificcashflow,particularlywiththecurrent18%royaltythatitnowprovides.

Asyoucanseeonslide7overthelast52weeksU.S.storebrandscontinuetogainshareinsmokingcessation.Whenyoutakeouttheimpactofnewnationalbrandproductlaunchesandtheeffectofnationalbrands'returntothemarket,storebrandmarketsharecontinuestogrow.

GiventhemegatrendsI'vetalkedaboutformanyyears,includinganagingpopulation,increaseduseofmedicationsasindividualsgetolder,andrisinghealthcarecosts,Perrigoiswellpositionedtomeetthefutureneedsfortheglobalhealthcarecommunity.

NowletmeturnthecallovertoJudy.

JudyL.Brown (CFO,EVP):

Thanks,Joe.GoodmorningeveryoneandwelcometoourfirstearningsconferencecallwiththeadditionofournewlyformedBrandedConsumerHealthcaresegment,orBCHasI'llrefertoit,establishedaftertheMarch30,2015,closingoftheOmegaPharmaacquisition.

Ithasbeenanextremelybusyquarteronmultiplefronts.WecontinuetoexecuteontheintegrationofOmegaandbroadenourcustomerandpatientreach;furthertheprocessofshiftingourfiscalyearend




fromJunetoDecembertoameliorateyourfinancialanalysesgoingforward;updatedthemarketonourstrategiestoachieveorganic3-yearcompoundannualgrowthratesof5%to10%;announcedthreeacquisitionssinceclosingOmega;receivedtwounsolicitedoffersfromMylantoacquirePerrigo;andcontinuedtoactuallypursuenewcorporatedevelopmentopportunities,allwhileachievingrecordresultsinthequarter.NeveradullmomentatPerrigoandseeminglyneverenoughpagesinourpassports.

BeforewediveintothequarterI'dliketofirstremindyouofourcontinuedfocusonprovidinghighlytransparentfinancialandoperationalresults.WiththeadditionofournewPan-EuropeanBCHsegmentandourfocusoncontinuedgeographicexpansion,wewillnowprovideyouwithconstantcurrencyrevenueinformationtoenableeasieranalysisoftheunderlyingperformanceofourbusinessoutsidetheU.S.

Consolidatedresultsfromourdurablebasebusinessportfolio,bolsteredbythenewly-acquiredBrandedConsumerHealthcaresegment,delivered37%growthinadjustednetincome.Consolidatedadjustedgrossmarginexpanded460basispointsto49.1%withpositivecontributionsfromBCH,supply-chainefficiencies,andoverallpositiveproductmix.

AsJoetalksaboutfrequentlythemoataroundPerrigo'smarginsviaoursupplychainprowesswasclearlyevidentthisquarterasyear-over-yearorganicadjustedgrossmarginexpandedover300basispoints,drivenbyfocusedglobalsourcingandcontinuedmanufacturingefficienciesthroughoutouroperation.

NowI'dliketoturntoourbusinesssegment,startingwithareviewofourresultsinConsumerHealthcareonslide8.AsremindertheCHCsegmentnowincludethelegacynutritionalsaswellasourPDIbusiness,whichhadpreviouslybeenreportedinOther.

SaleswithinCHCweredrivenbypositivecontributionsfromoursmokingcessationfranchise,evenafterthereturntomarketofanationalbrandcompetitor,inclusionofsalesfromstorebrand600mgMucinexERinthequarterversuslastyear,andoverallhighersaleswithinthecough/coldcategoryduetoarelativelylongercough/coldseasonintheU.S.versuslastyear.

Withintheinfantnutritioncategorynetsalesofinfantformulacontinuetoperformwell,ledbyincreasingconsumerappetitefororganicformula,reflectedinhighercontractmanufacturingsalesinthatcategory.Offsettingthesepositivedynamicswere,one,relativelylowersaleswithintheanimalhealthcategoryledbytheabsenceofcontractmanufacturingsalestoanationalbrandaspreviouslydiscussedlastquarter;two,arelativedecreaseinOTCpromotionsthisyearbycertainretailersofamajorproductintheGIcategory;three,continuedpricepressuresfrominternationalcompetitorswithintheVMScategory;andfour,$12millioninforeigncurrencyheadwinds.Infacttheimpactoftheanimalhealth,VMS,andFXitemsIjustmentionedwerea450basispointyear-over-yeartoplineheadwindtothissegment'sgrowth.

Adjustedgrossmarginexpandedtoitshighestlevelinthe6--last6yearsduetogreaterproductionefficiencies,greaterseasonalvolumes,andfavorablecommoditypricing.AtthesametimewecontinuedourspendingdisciplineinSG&A.Andasaresultadjustedoperatingmarginincreased390basispointyearoveryear,whichledtotheimpressive18%growthinadjustedoperatingincomecomparedtolastyearthatJoejustmentioned.

Onslide9youcanseethatnetsaleswithinBrandedConsumerHealthcarewere$401millionforthequarter,anall-timerecordquarterforOmegaPharma.Thisimpressiveresultwasdrivenbyan11%increaseinsalesofthetop20brandsonaconstantcurrencybasisversuslastyearandthelaunchofanumberofexcitingnewproducts,includingXLSMaxStrength,alineextensiontothebrandSLXMedicalforweightloss;newversionsandflavorsofBronchostop,anherbalcoughmedicine;andstrongdistributionsalesinthequarter.




Turningtoslide10youcanseethatourRxteamcontinuedtodeliver,posting10%netsalesgrowthtoarecord$278millioninthequarter.Newproductlaunchesandcontributionfromourwomen'shealthbrandedcategoryledtorecordadjustedgrossprofitforthesegment.WecontinuetoinvestinhighmarginpotentialR&Dprojects,highlightedbyanapproximate38%increaseinyear-over-yearR&Dinvestmentstoalevelof7.2%ofRxnetsales.

Turningtoslide11SpecialtySciencesnetsaleswere$84million,comprisedofTysabriroyaltiesat18%fortheentirequarter,versusonly2monthsatthat18%levelayearago.Year-over-yeargrowthwaslimitedbytwodynamics,one,foreign-exchangenegativelyimpactednetsalesbyapproximately$7million,andtwo,secondcalendarquarter2014netsalesincludedapproximately$10millioninnetsalesfromBiogen'sagreementwiththeItalianMedicinesAgency.

BeforeIturntotheforecastaquickcommentonthebalancesheet.AsofJune27,2015,totalcashonthefaceofthebalancesheetwas$786millionandcurrentandlong-termdebtwas$5.3billion.Netcashflowfromoperationsonatrailing12-monthbasiswasarecord$1.2billion.

Movingintotheupdatedcalendar2015guidanceonslide12.First,I'dliketostartwithnotingthatweareconfirmingourcalendaryearconsolidatednetsalesandadjustedearningspershareguidanceweprovidedyouonApril21.TohelpyoufurtherrefineyourmodelsI'dliketoprovideyouwithsomeaddedcoloronthesegmentsforcalendar2015.

Duetopreviously-discussedseasonalityinConsumerHealthcare,specificallyintheanimalhealthandcough/coldcategories,weexpecttheadjustedoperatingmarginrealizedinthissegment'spastquartertobethehighestfortheyear.Asisourhistoricaltrendinthissegment,volumesinthesecondhalfofthecalendaryearareanticipatedtoberelativelyloweroverthenexttwoquarters,thusproducingrelativelyloweradjustedoperatingmargininthesecondhalfofthecalendaryearinlinewithpastseasonalperformance.AdditionallyweanticipateR&Dspendtoincreaseapproximately30%inthesecondhalfofthecalendaryearrelatedtoprojecttiming.

WecontinuetoexpectBrandedConsumerHealthcaretocontributeapproximately20%oftotalPerrigoconsolidatednetsalesforthefullyearwithstrongnetsalesovertheremainderofcalendar2015.NotethatthoughourforecastinthisnewbusinessanticipatesthattheJunequarterjustendedwillbethehighestrevenuequarterinthecalendaryear,duetonewproductlaunchessuchasXLSMaxStrengthandstrongdistributionsaleswejustrealizedinthatparticularperiod.NotealsothatthecurrentBCHforecastnowdoesinclude$25millioninnetsalesassociatedwithrecentlyannouncedacquisitions,whichweexpectwillcloseintheSeptemberquarter.

GiventhecontinuedpositivemomentumintheRxbasebusiness,coupledwithstrongrecentproductlaunches,weremainexcitedaboutthissegment'sgrowthprospects.PleasenotethatfortheremainderofthecalendaryearadjustedgrossmarginsinRxarealsoexpectedtobeslightlysofterthanthispastquarter,duetoproductmixandlimitednewproductlaunchesfortheremainderofthecalendaryear.

Turningtoslide13.Whiletheadjustedannualeffectivetaxrateisstillexpectedtobeapproximately17%forthefullcalendaryear2015,weanticipateboththethirdandfourthcalendarquarterratestoincreasetoapproximately18.5%duetotheinclusionofestimatedearningsbeforetaxfromOmegaPharma.Thisjumpintherateisafunctionoftheaccountingrulessurroundingannualizingeffectivetaxrates.

Pleaserealizethatforaccountingpurposesthe6-monthstubperiod,orsecondhalfofcalendar2015,isthefirsttimeOmegaresultswillbeincludedforafullU.S.GAAPreportingcycle.Thefirsthalfofcalendar2015wasstilltechnicallypartofourfiscal2015reportingyear,whichincludedOmegaforonlyonequarter.Thisestimated18.5%adjustedtaxrateisinlinewiththeexpectationsfromourNovember6Omegaacquisitionannouncementcall.




Sosummingallthisinformationupattheconsolidatedlevel,weexpectthirdcalendarquarter2015adjustednetincometogrowbetween30%and35%overthecomparable2014period.Foryourcalculationsofearningspersharepleasecontinuetomodeldilutedsharesoutstandingofapproximately147millionsharesinthequarter.

AsIstatedafewmomentsagothesearecertainlyveryexcitingtimesatPerrigo,bothintermsofreachingnewcustomersaroundtheglobeandexecutingourBP3[BasePlusPlusPlus]strategy.Yetagainwe'vedeliveredremarkableyear-over-yearadjustednetincomeperformance,37%thisquarter,comingoff41%growthintheMarchquarter,withexpectedgrowthnextquarteragainnorthof30%.

AtthesametimerecordcashflowswillcontinuetoprovidemeaningfulreturnstoshareholdersandaswellastheycreatethedrypowdertoenablemeaningfulM&Aandthemultipliereffectthesetransactionscanachieve.

NowI'dliketoturnthecallbacktoJoe.


Thankyou,Judy.BeforeweopenituptoQ&A,Iwanttojustprovideafewthoughts.

First,IwanttorepeattheexcitingnewsthatwereceivedthreeANDAapprovalswithinthelastweek.Thatisgreatnews.AndtomyrecollectionisarecordforPerrigo.AndimportantlyitgivesusincreasedconfidenceinourabilitytoexecuteontheBasePlusPlusstrategy.

Second,ourmanufacturingandsupplychainteamshavedoneagreatjobfindingoperationalefficiencieswithourcontinuousimprovementprogram.Andyou'rereallyseeingitinthebottomlineresultsofourcompany.

Third,IwanttotakeamomenttospeakabouttheunsolicitedofferbyMylantooffer2.3sharesplus$75incashpershareofPerrigo,whichIknowisonalotoftheshareholders'minds.Aswe'vebeensayingsinceAprilwestronglybelievethatMylan'soffersubstantiallyundervaluesPerrigo;isnotinthebestinterestofPerrigoshareholders.Andbothremaintruetoday.WedonotbelievethisisinthebestinterestofPerrigoshareholders.

Ourboard'srejectionofMylan'sofferwasunanimous.AndmadespecificallythatithadnothingtodowithTeva.IthasalwaysbeenastrengthofourstandalonePerrigobusiness.YouhaveseenthisreflectedtimeandtimeagainaswereturnvaluetoourshareholdersbyexecutingonourBasePlusPlusPlusstrategy.

Ouracquisitionstrategycontinuestoprovideamultipliereffecttoouralready-strongorganicgrowth,aswe'veshownwithouracquisitionsofleadingEuropeanbrandsoverthepastfewmonths.ThemarketmovementsfollowingTeva'sannouncementlastweekonlyreinforceourconvictionabouttheMylanoffer.

AlsoPerrigohasastronghistoryofresponsiblecorporategovernancepolicies.Webelievedeeplyinourresponsibilitytoshareholders.Forexamplein2014Perrigoreceivedthebestcomplianceandethicsprogramforalarge-capcompanyandourGeneralCounselToddKingmawontheGovernanceProfessionaloftheYear.GreatachievementforToddandtheentirePerrigocompany.

Butthereisalotofnoiseinthemarket.AndIwanttotrytodistillitdownintoreallythreecommentsontheunsolicitedMylanoffertoacquirePerrigo.SpecificallycombiningwithMylan,numberone,woulddilutethestrengthofourdurableconsumerbusiness.Itwouldriskthevaluethatwecontinuedtocreateforshareholders.

Numbertwo,webelieveitwouldresultinasignificantP/EmultiplecontractionaswetakeourPerrigodurablebusinessandcombineitwiththeMylanbusiness.




Numberthree,ImakenostatementaboutthetimingofEpiPengeneric.HoweverclearlyitwouldexposePerrigoifwemergedthetwocompaniestogethertoaproductconcentrationriskofEpiPen.I'llletyoualldecidewhenandifagenericwillshowupofEpiPen.

ImakenopredictionsonhowMylanshareholderswillvoteonAugust28,butIalsowanttoremindeveryoneincludingtheMylanshareholdersthatiftheyproceedwithatenderofferforPerrigo,thiswillnotbetheeasypathtocompletionthatsomearepaintingittobe.Thebarforsuccessinthetenderofferprocessisaveryhigh80%ofalloutstandingPerrigoshares.

We'vebeenontheroadtalkingtoourshareholders,andwearepleasedtohearyourconfidenceinPerrigo'smanagementteamandourstandalonestrategy.Eachofyouwillneedtomakeyourowndecision.Butbasedonthecurrentoffer,ifweevergettoatendershareprocess,IintendtovotenototheMylanunsolicitedoffertoacquirePerrigo.

InclosingwecontinuetobelievethatMylan'soffersubstantiallyundervaluesourbusiness.AndweareconfidentthatbyexecutingonourBasePlusPlusPlusstrategywecandeliverfarsuperiorgrowthtowhatisrepresentedbytheMylanoffer.

Iwillnowopenupthecallforanyquestions.Operatoranyquestions?

QUESTIONS&ANSWERS

Operator :

Pleaselimityourtimetoonequestion.PleaseholdwhilewecompiletheQ&Aroster.AndourfirstquestioncomesfromLouiseChen.

LouiseChen (Analyst-GuggenheimSecurities):

Hi.Thanksfortakingmyquestion.SoonequestionthatweoftengetishowmuchgrowthisleftforPerrigooverthelongerterm,especiallyinlightofsomeofthenewseventsthathavehappenedrecently?Areyoujustatthebeginning,middle,orendofthecompany'sgrowth?Andhowcommittedareyouasamanagementteamtoseethisthrough?Thanks.


So,Louise,thanksforyourquestion.ImeanIthinkthecommentarythatIwillofferisthatweseethegrowthopportunitiesasbeenverysubstantialforthePerrigocompany.Numberone,relativetowherewesitasacompany.Wereallythinkthere'sthreemegatrendsthatcontinuetodrivethebusiness,eachofthemcontributingtothegrowth.

FirstoneisjustwhatIwouldcallthedemographicsandtheintensityofusageofpharmaceuticals.Weexpecttogoupaswe'vejustseengrowthinthepopulation,andmoreimportantlygrowthoftheover65populationthatuses2.7xmorepharmaceuticals.

Numbertwo,weexpectthecontinuedmovementformnationalbrandtostorebrand.That'satrendthatwecontinuetoseeevendespitesomeofthenewlaunchesthathaveoccurred.Wecontinuetoexpecttoseemoreproductsshift--moreconsumersshiftfromnationalbrandtostorebrand.

Andnumberthree,it'sthemovementofnewproductsthataretodayprescriptionmovingover-the-counter.Weexpectthatwillcontinuetoalsocontributetoourgrowth.Sowestillthinkthere'sasignificantgrowthopportunity.

OntopofthatthoughwhatIthink--thesecondpartofyourquestion--isthatweseetremendousopportunitiesnowthatwe'vealignedandacquiredtheOmegaorganization,andwhatthatmeansforus




ontheBrandedConsumerbusiness.

AndimportantlythesamethingsthathavehelpedPerrigogrowinthepast,whereweboltedonincrementalassets.Wethinkwecandothatsamething.WethinktheGSKasset,theYokebeassetarejustthebeginningofthingsthatwecanboltonaswelooktocontinuetogrowthatOmegaasset.

Sowe'rereallyexcitedaboutthefuture.AndIthinkthat'sjustafullreviewofhowexcitedwefeelaboutwherewecangowiththisbusiness.

Operator,nextquestion?

Operator :

OurnextquestioncomesfromRandallStanicky.

RandallS.Stanicky(Analyst-RBCCapitalMarkets):

Great.Thanksguys.Ijusthaveatwopartquestion.First,Joe,youhavespentalotoftimehighlightingyourexposuretowhatI'llcharacterizesasamuchmorestableconsumerandconsumerfacingbusiness.What'syourappetitetoaddmoregenericexposureoutsideofaMylantransaction?Andhowdoyouthinkaboutformulationtechnology,geography,andthenpossiblesize?ThenIhaveonequickfollow-up.


Okay.Soonthequestionofwhatwe'vedone,you'reabsolutelyright.We'vebuiltourbusiness.We'vedonesomeadditionalacquisitions,mostnotablytheOmegaacquisition.Nowthatwe'resittingatapproximately75%ofourrevenuesareverystrongrevenuesinourconsumerfacingbusiness,wethinkthatgivesusaverydurableplatformforthefuture.

ButasI'vesaidinthepastour--Icannotsayitmorestrongly--thatourRxbusinessisaveryuniquebusiness.Itisabusinessmodelwithincredible,incrediblemargins.MostrecentRXmargins--letmejustgetthespecificamount,Idon'twanttogiveyouaninappropriatenumber--butthemostrecentgrossmarginwas64.8%witha49.5%operatingmargin.That'saveryuniqueRxbusiness.

IfIcanfindadditionalassetsthatfitintothat--andthatmeansthatthere'ssomedegreeofdifficultyinproducingthem.Forusithasalwaysbeenextendedtopicals,thingsabsorbedtopically,dermatology,respiratory,nasal,ophthalmic,etcetera,I'mgoingtocontinuetolookforthosetypesofassets.SoIdothinktherearesomeoutthere,andwe'llcontinuetolookforthem.

SoIdon'twanttolimitusonlytoconsumer.IdothinktherearesomeRxassetsthatwouldmakesensetousasacompany,notwithstandingthe--asyousaidtheMylansituationforus.

Isthatwhatyouwerelookingforontheformulationcomment?


Great.Yeah.Yeah.Yeah.Justthesecond,orpartBofmyonequestionwouldbejust,youcalledoutonslide7thesmokingcessationandthestorebrandgrowthovernational.AndIjustwantedtogetasense,hasGSKcomeback?Haveyouseenthatimpact?Andareyougrowingthroughthatreturn?AndhowmuchofwhatIthinkisabouta$250millionbaseforyou,howmuchofthatdoyouthinkyoucanholdontoifGSKdoesreturn?


GSKisbackinthemarketplacetobeclear.Andwearecontinuingtogrowthroughthissituation.AndasI




saidinthepartofthecallitisaverygoodbusiness,verylargebusinessforus.Butonethatwethinkhastremendousupsideforusinthefuture,especiallynowaswe'veacquiredtheGSKbrandedassets,notU.S.assets,butexU.S.assets,mostnotablyinEurope.Wethinkthatgivesusanotheropportunitytogrowtheproduct.

OneoftheuniqueitemsaboutPerrigoisnowpairedwithOmegacandosomethingthatOmegacouldn'tdobyitself,Perrigocouldn'tdobyitself.WecouldbuythoseGSKassetsthatwereavailableinEurope.

SonotonlydoweseeitgrowinghereintheUnitedStates,asevidencedbytheIMSortheIRIdata,butalsoweseetheopportunitytogrowoursmokingcessationcategoryinEuropeandaroundtheworld.Sowe'rereallyexcitedaboutit.Wethinkwe'llcontinuetogrowthatbusinessveryconsistentwhatwe'veseenhistorically.


That'sgreat.Thanksverymuch.

Operator :

YournextquestioncomesfromSumantKulkarnifromBankofAmericaMerrillLynch.

SumantS.Kulkarni(Analyst-BankofAmericaMerrillLynch):

Thanks.I'mgoingtoaskmyonequestionplus,plus,plus.


Welldone,Sumant.


Howmuchmoreleverageisthereinyoursystemondistributionsellingandadministrativeexpense?AndwheredoyouseetheopportunitiesforcostreductionifthereareanyatPerrigorightnow?


Sure.I'llstart.Judy,youmightwanttoaddtowhatIsay.ButIguessI'llsaywethinkthere'splus,plus,plusopportunity,Sumant.

SpecificallywhatamIsaying?Firstofallontheleveragewe'reseeingisthatthereisnodoubtthataswedoadditionalM&A,wethinkthere'schancestojustgetmoreofitonthetruck,asweshipourtruckfromPerrigotoourlargeretailers.Sothat'sbothhereintheUnitedStates,butalsonowaswe'redoingthoseacquisitions,boltonacquisitioninEurope.Soweclearlythinkthere'sachancetoleverageadditionalmarginorleveragetheP&L.

SecondcommentIwouldsayisthatIdon'twanttomissthechancetosayitonemoretime.ThesupplychainteamfromPerrigoandourentireoperationalandmanufacturinggrouphavejustdoneanoutstandingjobofjustrunningourfacilitiesveryefficientlyandfindingcontinuousimprovementprojectstolowerourcostofgoodssold.ThathasgivenustremendousleverageinourP&LandespeciallyinthemarginstructureasItalkedabout.

OurConsumerHealthcareoperatingmarginthisquarterat21.4%is--it'scertainlyanall-timerecord.AndIthinkreallyreflectsthefactoftheteamjustworkingverywelltotakecostoutofthesystemandallowustoleveragewhatwe'vedoneandhistoricallyandjustdomoreofit.Judy,anythingyouwanttoadd?





TheonlythingIwouldelaborateuponisasyou'reallwitnessingdynamicchangesinhealthcareandlifesciences,you'reseeingdifferentdeliveryprocessesandsystemscomingabout.Andourcustomersandretailerspartneringwithotherstoreachpatientsmoreefficientlyandeffectivelyandbroadenthereachofhealthcare.

Oursupplychainteamanddistributionfolksarealreadyreachingallofthoseplayers.Soasthatdynamismcontinueswe'reabletocontinuetoleverageourrelationshipsandourdistribution--physicaldistributionnetworktoservethesenewly-formedentitiesaswell.Sothatdynamismcontinuestobeservedwiththeassetsthatwehaveandthecompetencythatthisteamhasbuilt.


Yeah.ProbablyonelastcommentI'llmakebeforeyougotoyoursecondpart,Sumant,isthatoftenpeopleaskmeaboutthequestionabout,welltheretailersareputtingmorepressuretogetbetterpricinginthemarketplace.Andthatistrue.

ButpleasemakesurethateveryonerealizesthatwearedoingexactlythatsamethingwithourAPIsuppliers.Weareputtingpressureonthemtogetbetterpricingforourrawmaterials.AndIthinkthat'spartofwhatyou'reseeinghereisthe--ourabilitytotakeadvantageofwhat'vealwaysaffectionatelyreferredtoasamoatandhowwelookatourbusinessandhowwecancontinuetoseekoutadditionalpricingimprovementsforourcostofgoodssold.

Soit'sclearlywethinkanimportantpartofwhatbroughtsomeofthissuccess,andcertainlyonthelegacybusinessrecordoperatingprofits.Didyouhaveasecondpart?


Justonhowmuchcostcouldcomeoutofthesystem.ButIthinkyoutoucheduponthat.


Yeah.Okay.Operator,nextquestion?

Operator :

OurnextquestioncomesfromDavidMarisfromBMOCapitalMarkets.

DavidW.Maris (Analyst-BMOCapitalMarkets):

Goodmorning.Joe,weagreewithyouthattheoffersignificantlyundervaluesPerrigo.ButoneofthethingstheAllegandidwhentheyhadanunsolicitedofferisthattheydrewaverybrightlinebetweenthetwodifferentbusinessmanagementstylesandbusinessmodels.

Someofthat--donealittlebitsofar.ButtodayyoumentionedabitabouthowPerrigohasbestinclasscompliance.

Aftertheearningsbeingoutontheroadtotalkalittlebitaboutthisunsolicitedoffer,isityourintentiontodomaybeastrongerjobinexplainingthedifferences?Doyouseeadifferenceinthecorporatecultures?

Andthenseparatelyifthere'sa--if(inaudible)intheirfavordoyouintendtothenreachouttootherinterestedparties?Andarethereotherinterestedparties?Thankyou.


Soyouaskedalot,David.I'mgoingtotrytogetthroughallofthem.Sofirstofallthankyouforyour




commentaryonsupportingourpositionthatthisofferbyMylansubstantiallyundervaluesthePerrigocompany.

Onthequestionofmanagementstylethere'snodoubttherearedifferencesinthemanagementstyleofthetwocompanies.Ireallydon'twanttogointoanyofthepositivesandnegativesonthisone.Therewillbeatimeandplaceforthatshouldthatgettothepoint.

Ithinkwhatwe'vetriedtofocusonpredominantlyrightnowthoughisthatwe'reveryproudofwhatwe'veaccomplished.We'reveryproudofwinningthecorporategovernancelarge-capcompanyoftheyear.That'ssomethingthatToddandtheentireteamworkedveryhardataccomplishing.Andwe'reveryproudofthingslikethat.

We'reveryproudofourcorporatecultureandwhatwe'veaccomplishedasateam.ThePerrigoteamhasbeentogetherforthemostpart,thisentireteam,we'vebeentogetherforgoingon9yearsnow.Soit'sateamthatknowseachotherverywell,knowshowtogetthingsdone.Andimportantlydeliversonthebottomline.

Yes,wehavechallengeslikeanyotherteam.Butwe'vedoneagreatjobworkingtogetherasateamandachievinggreatresults,bothformakingqualityaffordablehealthcaremoreaffordableforpeopleallovertheworld.

Sowe'reexcited.Andaswethinkaboutfuturethere'sevenmorewethinkwecandotomakethisareality,especiallyknowingthatwethinkwe'reinawinningspotinhealthcare.Wethinkwe'vegotadurablepositionoverthelongterm.

Ifatsomepointthereisa--theMylanteamwinstheirshareholdervote,thenthere'sa--wecantalkmoreaboutitatthattime.RightnowIthinkwewanttostayfocusedoncontinuingtodrivethe--ourBasePlusPlusPlusstrategyforthefuture.

DavidW.Maris (Analyst-BMOCapitalMarkets):

Great.Wellthankyouverymuch.


Thankyou.Operatornextquestion?

Operator :

YournextquestioncomesfromMarcGoodmanfromUBS.

MarcGoodman (Analyst-UBSSecurities):

Morning.Sofirstinconsumer,thediscontinuedsaleswereunusuallyhigh.Canyoujustgiveusalittlemorecoloronthat?

Second,Omega,justremindusfirstofanyseasonalityinthatbusiness.Andsecond...


Yeah.

MarcGoodman (Analyst-UBSSecurities):

Youmentioneddistribution.Howmucharedistributionsalesrelativetolikejustregularconsumerdirectproductsales?OrmaybeIdidn'tunderstandit.




Andthenthirdinthegenericsbusiness,justremindusofwhereweareinthispriceincreasedynamic?Andhowsustainableyoufeellikethoseincreasesare?Thanks.


Okay.I'llprobablytakethefirstquestionontheConsumerHealthcareandthethirdquestion.Judy,letmedothembothandthenyoucantalkaboutOmegaandthedistributionandthentheOmegaseasonalityquestion.

SoonConsumerHealthcare,yes,therearediscontinuedproducts.That'sanormalpartofwhatwedoatPerrigo.Letmetrytodescribeit,becauseitisagoodquestionthat--Marc,thatyou'reasking.

Asalwayswecontinuetorefreshourportfoliotostayevenwiththenationalbrandequivalentapproachtoourbusiness.Sothatmeanstherearechangesthatoccurintheportfolio.Soaneasyexampleisinourpethealthcarebusiness.Thisyearweyouknowwelaunchedourfipronilplus.Thatisobviouslyanewproduct,averyexcitingnewproductforus.Andwe'vedonewellwithit.

Havingsaidthatthoughwehadafipronilwith[nobeloron]aspartofourbusiness,astheresultoflaunchingthefipronilwith--plus,wedecidedthatitwasappropriatetodiscontinuesinfipronilnobeloron.We--whenwedothatthoughwefindourselvespromotingproductsorhavinganationalbrandequivalentproduct,whichisalwaysgood.

Alsointhatparticularcaseit'sanationalbrandequivalentproductthathasabettermargin.Sothat'spartofwhat'sdrivingourbottomlineforthisbusinessasweshiftfromoneproducttothenextgenerationofproduct.Wediscontinuetheoldergeneration.It'sanaturalpartofwhatwedoatourcompany.Sothat'sprobablythefirstpartofit.

I'mgoingtogotoyourthirdpartongenericsandpricing,andI'llgobacktoJudyforthesecondone.Onthegenericsandthepricingenvironmentourteamhasdoneagreatjobatlookingatpricing,lookingatbothmakingmoneywhenwe'refirstwithourproduct,whichisanexampleoftheAndroGel1%.AndcertainlyasImentionedtodaywe'lldothesamethingwiththeAndroGel1.62%whenwelaunchthat.Sowegetgoodpricingthere.

Andfinallywegetgoodpricingwhenwe'rethelastoneswiththeproduct,oroneofthelastfewwithproduct.Soacrossthatportfoliowethinkthere'sstillopportunitiestodopricing.We'llcontinuelookatit.Wethinkthere'ssomethingthatwe'llbetalkingaboutinthefutureforpricing.

ButIthinkitreallysupportsthestrengthofthatoperatingprofitlineof49.5%andwhatweachievedwithourRxbusinessinthequarter.Andimportantlythegrossprofitlineis64.8%.

Soforthosereasonswethinkwe'vegotastrongRxbusiness.Andwelooktostillfindsomeadditionalpricingopportunitiesforthefuture.Judy,youwanttotalkabouttheOmegaportionofthequestion?


Yeah.Sure.Sojustbackingup,thequestionwasondistribution.SotheOmegabusinesshashistoricallyhadtheleadingdistributionofgenericsandsomebrandedproductsoutofBelgiumfromtheirhistoricalpresencethere.Andonaproforma,ago-forwardbasisthatwouldrepresentabout15%oftheirrevenues.

Soifyouthinkaboutinpreviouscallswetalkedaboutarunrate,afull-yearannualizedrunrateofOmegaofabout$1.6billion--sorry.$1.6billionrevenuerunrate.About20%wasdistribution.Andonago-forwarditwouldbeabout15%goforward.




Andwhenyoutalkaboutseasonality.TheJunequarterwasaverystrongquarter,asImentionedinthepreparedremarks.TheyhadanimportantlaunchintheJunequarter.Andthedistributionsaleswerealsoheavilyseasonal.

Why?Firstofall,youhaveyourcough/coldallergyseasoncomingoff,justlikeintheUnitedStates.Youhavethefocusalsointhesummerofhavingproductsavailableforstocking,becauseifyouknowthebehaviorinEurope,July,August,very,veryheavilyvacation-oriented.Andmanyofthedistributionsystemsmovedifferently.SoyouhavealittlebitmorefocusedseasonalityintheJunequarter.Soit'snotunusualforthatquartertobetheirstrongestoneinEurope.

Sowe'llbetalkingaboutthatonago-forwardbasisaswell,justlikewedoforourprimarilyU.S.ConsumerHealthcarebusiness.Butsufficeittosaytherestoftherunratefortheremainderoftheyear,slightlylower.Newproductlaunchcombinedwithwhatweexpecttobeagood,solidsecondhalfoftheyear.


Thankyou,Marc,foryouquestion.Operatornextquestion?

Operator :

YournextquestioncomesfromGreggGilbertfromDeutscheBank.

GreggGilbert (Analyst-DeutscheBankSecurities):

Thankyouguys.I'llsticktoatwoparter.FirstonCHC,whatcanyoudoorganicallytoimproverevenuegrowthtrendsforCHC?AndinorganicallydoyouseeacquisitionsofsizepotentiallyoutthereforCHCintheU.S.?

Andthesecondpartofthequestion,Joe,wastouchedonearlierbutnotaddressedheadon.Underwhatcircumstanceswouldtheboardofficiallyexploreallstrategicoptionsforthecompany?Orshouldweassumethat'salreadyunderway?AndI'mcurioushowthatplaysintoyourpredictionthattherewouldbea--quote--difficultpathtocompletionbetweenthat50%andthe80%?Thanks.


Sure.OnthequestionoforganicgrowthforCHC,Gregg,always--it's--there'salwaysgoingtobesomeamountofgrowthrelativetojustthedemographicsandpopulation.Justsomeofgrowth,it'sgoingtobefromnationalbrandswitchingtostorebrand.

Butthebiggestpartofthegrowthandthebiggestexcitingpartofthegrowthiswhenwelaunchthosenewproduct.Whenwehaveachanceto--whichwehopeinvery,verynearfuture,certainlyoverthenext12monthsto24months--launchtheequivalentofFlonase,launchtheequivalentofaNexium,aMucinexD,aMucinexfamily,Aratozinesoftgel,justtonameafew.Thosearethebigonesthatwethinkwillhelppropelourgrowth.

Andit'swhywesaidwithconfidencethatweexpecttolaunchover$1billionofnewproductsinthenext3years,whenyouputthesetypesofproductsintothemarketplace.Wethinkthere'sasignificantreturnforourshareholders.

OnthequestionofinorganicConsumerHealthcaregrowth,yes,wedobelievethereissomeadditionalbolt-onsthatareincategoriesthatwe'vetalkedaboutinthepast,adultnutrition,ophthalmics,petcare,diabetes,aretheareaswherewethinkwecanstillsupportsomeadditionalbolt-onswithourbusiness.AndasJudysaidwherewe'regeneratingrecordsamountofcash,wethinkwecanusethatcashtodosomeadditionalbolt-onsandjustmakeourbusinessmorevaluabletothelargeretailers.




Onthethirdcomment--orathirdpartofyourquestion,strategicoptions.Wedobelievewehavestrategicoptions.Rightnowwearefocusedonrunningourstandalonebusiness.Wethinkthat'sthemostimportantthingtodoasacompany.Andasyoucanseewe'redoingitquitewellwithwhatwe'veshown,justa34%revenuegrowth,a48%grossmargingrowth,anda35%operatingincomegrowth,a25%EPSgrowth.Wethinkthat'sanimportantpartofoursuccessinthestandalone,andwe'regoingtocontinuetofocusonthat.

Ifinfactthatwegettoapointwherewethinkthereisa--ifMylandoeswintheirshareholdervote,andthere'sinitiationofatenderprocess.Atthatpointwe'dmakesomestrategicdecisionsasaboardastowhat'stherightthingtodoforthecompany.Idoknowthereareothercompaniesthathaveexpressedsomeconversationstome.ButIdon'twanttogotoofartoofast.Ithinkwe'regoingtocontinuetostayfocusedonwhatwe'redoingasacompanyonastandalonebasis.

GreggGilbert (Analyst-DeutscheBankSecurities):

That'shelpfulcolor.Thanksalot.

Operator :

YournextquestioncomesfromLindaBoltonWeiserfromB.Riley.

LindaBoltonWeiser (Analyst-B.Riley):

Hi.Thankyou.SoyougavequiteabitofcolorontheOmegaandthegoodsalesthereandthenewproductsandtheseasonality.ButIwascuriousaboutintermsofthenewproducts,doyouhaveawindowintolikehowdoes2016lookrelativetonewproductsales?Woulditbekindofhigherorlowerthenwhatwe'reseeingin2015?

Andthensecondly,Joe,ifyoucouldjustgivealittlemoreexplanationontheomeprazolemagnesiumapproval?Imeantoconsumersit'sknownasPrilosecOTC,andit'skindoftransparenttothemIthinkwhatit'sactuallymadeof.Soisthatgoingtobeacannibalisticproduct?Orareyouactuallygoingtogetmoreshelfspacebyputtinganotherproductontheshelf?Canyoujustexplainthatalittle?Thanks.


Sure.Soletmejuststartwith--I'llstartwithsomecommentsonournewproductportfolio.And,Judy,ifyouwanttoaddanythingtothatpleasefreetodothat.

Firstofallour--whatIthinkthebestthingIcansayrightnowandwhatwehavesaidoutinthemarketplaceisthatweexpect$1billioninnewproductsoverthenext3years.Themajorityofthoseproductswillbeonourconsumersideaswe'vesaidthat,justrealizingthatapproximately75%ofourrevenueisontheconsumerside.Admittedlythat'slookingatbothOmegaandPerrigotogether.Butthatmajorityofitwillbeontheconsumerside.

TheonlyfinalcommentIwouldsayiswhilewehavenotgivenindividualyear-by-yearcommentary,wedoexpectthenewproductflowtobeapproximatelyathird,athird,andathird.NowitmaymovefromyeartoyearjustsimplyasFDAapprovalscomein.Butit'sapproximatelyathird,athird,andathirdisthewayIwouldcharacterizeit.Obviouslyalittlebitmoreintheouteryears,buttheapproximationathird,athird,andathird.

Onthequestionofomeprazolemagnesiumwethinkit'simportant.It'snot--itwouldbetheveryfirstomeprazolemagnesiumtabletproductinthemarketplace.Astohowwelaunchthatproductandwhatwedowiththeproduct,Ithinkwe'regoingtocontinuetoweighouroptionsonthat.ButtobeclearitistheveryfirsttabletformulationthatisomeprazolemagnesiumequivalenttoPrilosecOTC.




Ourproductcontinuestoperformverywell.SoIdon'twanttooverpromiseforthisproduct.ButitisanoptionalalternativeforustothinkaboutaswethinkaboutthefuturemarketplaceforourequivalentofPrilosec.Judy,anythingelseyouwantedtocommentononthenewproducts?Or...


Justwantedtomakesure--alittlecolorthere,Linda.AsJoesaidwe'vehit$1billioninnewproducts,thinkathird,athird,athird.Talkinggreaterthan$300millionnextyear,butthatiswithoutOmega.

Atthisstagewe'restillintheprocessofscrubbingandmakingsurethataswedefinedtheplanfornewproductsthatwe'rehittingthesamedefinition.ButsufficeittosaythattheteamhasquitealonglistofnewproductsopportunitiesbothorganicallyaswellastheirplansforputtinginproductthatiscurrentlyintheI'llcallitU.S.consumerportfolioandpluggingthatintotheirformat.Whichaswe'vetalkedaboutisakeydriveroflong-termfuturerevenuegrowthwithintheOmegaplatform.

Sowehaven'tcalledthatnumberoutyet.Aswegetbetterclaritywewill.Butsufficeittosaythatwillbeaccretivetothe$1billionwe'vetalkedabout.

LindaBoltonWeiser (Analyst-B.Riley):

Great.Thanks.

Operator :

YournextquestioncomesfromElliotWilburfromRaymondJames.

Elliot Wilbur (Analyst-RaymondJames&Associates):

Thanks.Goodmorning.Andyou'vetouchedonthissubjectmatterIguessacoupletimes,butmaybewecouldexploreitinalittlebitmoredetail.BecauseIdothinkit'sanimportanttrendbreakandcertainlywe'llentertainquestionsaboutdurability.

ButspecificallythegrossmarginperformanceintheConsumerHealthcaresegment,obviouslyarecordlevelandwellaboverecentperformancetrends.AndcertainlyPerrigoofnonbelieversIguessovertheyearshavesortofpointedtoabsenceofmarginexpansionevenwithgrowth.Andthisquarterobviouslystandsoutasadramaticexceptionjustsortofthattrend.

Andjustthinkingaboutacoupleofthepush/pullfactorshere,specificallythediscontinuedproducts.Iwouldassumethatthosewererelativelylowmargin.Andalsothecontinuedshrinkageofthecontractmanufacturingbusiness.Thosehadpositiveimpactsonmargintrends,butyoualsotalkedaboutoperatingefficienciesaswell.Somaybejustalittlebitmoregranularitytheresothatwecouldperhapsunderstandthedurabilityoftheperformancethisquartergoingforward?


Okay.So,Elliot,youactuallyknowourbusinessverywell.Icongratulateyou.You'vetouchedonthem.ImeanI...

Elliot Wilbur (Analyst-RaymondJames&Associates):

I'mclearly--Icome--I'mforsale,Joe,attherightprice.Justthrowthatoutthere.


Sogettingbacktothequestion,thegrossprofit,absolutely.Imeanyouhitonit.Very--productmixwasimportant.Wesoldmoreofthehighermargin,lessofthelowermarginitems.Thatobviouslyhasan




impactonrevenueasyouappropriatelypointout.Butwethinkthat'simportantthatwecontinuetostayequivalenttothenationalbrands.Sowefollowthosenationalbrandsveryclosely.Aswegetbetterproductsinthemarketplacewediscontinuesomeproductsthatarejustnotasvaluable.

Numbertwoforusonthisquestionofmixisasthebrandsswitchfromastandardtablettoafastdissolve,wewanttobethere.Wewanttobetherewith--forexamplewejustgottheAdvilquickdissolveorfastreleaseproductapproved.That'sanotherexampleofabrandgoingafteranewformulation.We'refollowing,we'refollowingquickly.We'llhavethatproduct.Andtoourknowledgewe'retheonlyonewiththatproductapproval.Thatwillbeanotherexampleofanupsideopportunityforusrelativetomargin.

Sothosearethingsthatwedoonthemarginsidefor--yes,wediscontinueproducts.Butimportantlywetrytolaunchnewproductsthatarenationalbrandequivalentthathavebetteramarginstructure.

Ontheotherpointofitclearlythoughistheoperatingefficiencyoftheteam,bothfromjustthecontinuousimprovementprojects.Wehavehundredsofcontinuousimprovementprojectsthatwerunthroughtheteam.We'vetriedveryhardtomakethatapartofourDNAatthecompany.AndindeedIthinkwe'vehadsuccessdoingthat.Andwe'llcontinuetolooktotrytogetoperatingleverageinourP&L.

Asafinalpointyoudidn'tmention,Idowanttomakepointofitthoughisthatverymuchasourcustomershavecometousforpricingdiscountsandrebates,etcetera,we'vedonethesamethingwithoursupplychain.We'vesaidtoourrawmaterialssuppliers,listen,wecangetsomeincrementalbusinessbyworkingwithlargecustomerX.Ifwedothatandcandosomethingscanwegetsomeadditionaldiscountsonourcostofgoods?Andindeedwe'vehadsuccessdoingthat.Andwethinkthat'sgoingtobeanimportantpartofourfuture,toyourquestiononwhatwe'rethinkingaboutinourfuture.Judy,anythingIleftout?


Soitwasatremendousmarginquarter,thereisnodoubt.AsIcommentedonearlier,wearestilllookingathavingaverystrongmarginquarterfortheconsumerbusinessasJoepointedout.

Thisquarterwasparticularlygoodwiththevolumesandtheamazingmanufacturingefficienciesthatwesaw.Itreallytranslatedintoabumpinthosemargins.Andweexpectthemtobestrongthroughtheyear.ButasIcommentedmarginwiseitwouldbethestrongestquarterforthecalendaryear.Butlookingstilloverallastrongperformanceingrossprofitfortheyear.

Andthenonanoperatingmarginbasis,againoperatingmarginaswell,secondquarterstrongest.It'sjustwithtimingofR&DspendthattheSG&Acostsavingsandefficienciesthattheteamsawinthisquarterweexpecttocontinuethroughouttherestofthecalendaryearaswell.

Sogoodleanoperatingefficiencyoftheoverallteambothonasalesandmarketingsideandonmanufacturinghavecontinuedtocontributetotheabilityoftheteam,evenwithsomedynamismonthetoplinethatyousawtobeabletoexecutewellonthebottomline.


Operatornextquestion?

Operator :

OurnextquestioncomesfromJasonGerberryfromLeerinkPartners.

JasonM.Gerberry(Analyst-LeerinkPartners):




Hi.Goodmorning.Thanksfortakingmyquestion.SojustcuriousonOmegaIthinkyouprovidedthegrowthofthetop20brandsyearonyear.Justkindofcuriousifyou'dbewillingtoprovidetheyear-on-yeargrowthrelativetotheprioryearquarter?

Andthen,Joe,justcuriouswithPfizerterminatingtheLipitorOTCswitchprogram,justcuriousyourupdatedthoughtsonwhetherthere'slifeforthestatinsintheOTCchannel?Thanks.


Sure.Idon'tknow.Wehaven'tgivenoutspecificnumbersonOmegaforitsgrowth,butitisdoubledigitsIthinkisprobablythewayI'drefresh--rephrasethequestion.


Soonaconstantcurrencybasisthetop20were11%yearoveryear.Forthewholeportfoliodirectionallymid-teenswouldhavebeentheyear-over-yeargrowth.You'vegotsomenoiseintherewithforeigncurrency,etcetera,etcetera,butapproximately14%,15%.


AndthesecondpartofthequestionwasonstatinsandPfizer'sdecisiononLipitor.IthinkasI'vealwayssaidIneverthoughtitwas100%chanceofprobability.Ididsay60/40.

ItappearsthoughthattheresultsofthePfizerclinicaltrialdidnotresultinpatientsgoingontoseetheirhealthcareproviders.Ithinkinthatsituationit'sprobablyunlikelythatstatinswillcometothemarketplace.Ican'truleoutsomebodyelsewilltryitwithanewrefreshmentandviewonit.ButIthinkbasedonthislastattemptbyPfizer,Ithinkit'sprobablyunlikelythatwe'llseestatinsinthenearfuturecometothemarketplaceforOTC.

JasonM.Gerberry(Analyst-LeerinkPartners):

Okay.Thankyou.

Operator :

OurnextquestioncomesfromAnnabelSamimyfromStifel.

AnnabelE.Samimy(Analyst-Stifel,Nicolaus&Co):

Hi.Thanksfortakingmyquestion.IwantedtojusttouchonCHCabitmore.Youkindofansweredthis,butitwassupposedtobeabiganimalhealthquarter,asyouweresellingintothechannelfortheseason.Anditseemsliketherewasactuallysomedeclines.Andyouhadmentionedthatyouhadswitchedoverproduct.

Butasyoulookatanimalhealthisthereasbig--isitasbiganupsideopportunityasyouexpected?AndtowhatextentdoyouneedtosupplementConsumerHealthingeneralwithinorganicgrowth?AndareyouplacingmorepriorityonOmegarightnowandgrowingEuropeanconsumersideasopposedtotheU.S.consumerside?

Andjustaseparatequestiononguidanceclarification.ItdoesordoesnotincludetheGSKproductsandtheGermannutritionals?Thanks.


Okay.SoIthinkIgotaboutfivepartsquestioninthere.IthinkI'lltrytogetthemall.




Onthequestionofanimalhealth.Animalhealthperformedreasonable,butitdidhaveaproblem.Theproblemwasthat--itwasMerial.Merial'sinfluenceontwopartsofit.Onepartofitwasclearlytheintroductionofthatsecondstorebrandequivalentproductthatwhichwebelieved--continuetobelieveisabreachofouragreement.We'llfindout.Andplaythatoutinthecourtsystematsomepointintothefuture.

Thesecondpartoftheanimalhealthstoryisa--it'sa--theyalsohadsomecontractmanufacturingbusiness.Thatispartofwhatwesaw.

Thebasebusinessthoughintermsofwhatwedoeveryday,storebrand,sellingourfipronilplusproduct,continuestoperformwell.Butwedohavesomethingswehavetooffset.

Onthequestionoftheswitchovers.Weexpecttoseemoreproductscontinuetogoover-the-counter,beavailableforustermsoffleaandtickproducts.AndtheteamisdoingagoodjobtogettheequivalentofthoseproductsintothemarketplaceandtocontinuetorefreshthatpipelineofR&Deffortsonthepetcareside.

Onthequestionofthedoingadditional--Ithinkthispartwasadditionalbolt-onsfortheU.S.business.Weclearlythinktherewasmoreopportunitythere.Andthenthesecondpart?


AreyouprioritizingOmegaoverthebolt-onsintheU.S.Iguess?


Idon'tthink--thegoodnewsisIdon'tthinkweneedtoprioritize.Wellwehavetoclearlyprioritize.Ishouldsaythat.Wehavetoprioritize.

ButIthinkwehavetheresourcesnowtodoboth.IthinkwithwhatwecandoinbothintheEuropeanplatformandtheU.S.platform,wehavethecapabilitiesbasedoncashflow.But,Judy,whydon'tyoucommentonthatpart?


AndthenontheOmegamodelingquestionintheguidance.AsIsaidthesecondquarteristhe--theJunequarteristhelargestquarterfortheyear,aslowerSeptemberquarterwiththesummermonthsandsummerholidays,peoplebeingawayfromhome.Butcombinedwiththeexpectationthatwewouldexpecttobeclosingonourtworecently-announcedacquisitionsinthatSeptemberquarter,whichthenmeansthatwehavesaidwehaveputapproximately$25millionofsalesassociatedwiththecombinationofthosetwotransactionsinthefourthquarteroftheyear.

Sothereisinfactanamountof$25millionincludedintheguidanceandinourforecastforthosetwoacquisitionsandOmega.


Thanks.


Yeah.


Operatornextquestion?




Operator :

YournextquestioncomesfromDavidRisingerfromMorganStanley.

EmilChen (Analyst-MorganStanley&Co):

Hi.ThisisactuallyEmilonforDave.Justaquickquestion.Youmentionedpriorityinconsumer.Canyoudiscusstheprioritizationintermsofinorganicversusorganic?Doyouguysviewinthesethatyouneedtodosomethinginorganicallyinthenearterm,especiallyagainstthestockoutof$1billionoverthenext3yearsorganically?Thankyou.


WellIthinkprobablythebestwayIcan--Ianswerthatquestionisbasedonourhistory.Ithinkwe'vealwayssoughttohaveabalanceofboththeorganicandinorganicinourgrowth.AndIthinkwe'llcontinuetolookatthat.

Wethinkdoingbothisreallythebestanswerforanycompanyoutthere.Sowe'llseektodotheinorganictobeclear,lookingatthosebolt-ontransactions.Wethinkthey'reveryvaluableandveryaccretivetoourshareholders.Sowe'llcontinuetolookatthose.

ButtheimportantcommentaboutwhatwedoeverydayhereatPerrigoistrytofindaqualityproduct,makeitmoreaffordable,anduseourresearchanddevelopmenteffortstocomeoutwiththenewproductflow.ImeanIthinkjustmycommentaryonnewproductsforusisreallycritical.AsIsaidI--tomyrecollectionthisisanall-timerecordofhavinginoneweekthreeANDAapprovalsfromtheFDA.

Butlookatwhattheyare.Theyareproductsthat--AndroGel1.62%,firsttofile.Advilfastrelease,toourknowledgealsofirsttofile,andcertainlywillbeouttherefirstapprovalforsure.Omeprazolemagnesium,yes,welaunchedanomeprazolebaseproductintothemarketplacegoingbacknowalmost7yearsago.Butwearenotcontenttojustsitthere.Andwewanttocontinuetogoafterthenationalbrandequivalent.

Wehavethoseopportunities.We'regoingtocontinuetotakethemtomakesurewemakeaqualityproduct,makeitmoreaffordableforsociety,bothhereintheUnitedStatesandaroundtheworld.Andthat'swhatwethinkisreallyexcitingandmotivatingtousasacompany.

OperatorIthinkIhavetimeformaybeonemorequestion.

Operator :

OurnextquestioncomesfromJamiRubinfromGoldmanSachs.

JamiRubin (Analyst-GoldmanSachs&Co):

Thankyou.Judy,Ihaveaquestionforyouandthenafollow-upforyou,Joe.

Whenyoutalkedaboutthesecondhalfoftheyearwitheachofthebusinesses,youthrewalittlebitofcoldwaterintermsofexpectinghigherexpenses,lowermargins,etcetera.Orthatsecondquarterwassortofapeak.

Areyoublessingthelowerendofthe$7.50to$8guidancerange?Andwhatdoesmakeup--whatis--whatarethekeyvariablestothat$0.50difference?

Andthenjust,Joe,afollow-upandmaybethisisnotafairquestion.ButIthinkwe'realltryingtogetat




this.IntheabsenceofawhiteknightinvestorforPerrigo,howdoyoudriveupsidetoyoursharepriceasastandalonecompany?Justbasedonconsensusestimatesthestocktradesata24multiplenowonthisyear'searnings,a22multipleonnextyear's,whichiscomparabletoCelgene.

Andclearlywhileyou'vedoneagreatjobwithdealactivityandtoplinegrowth,ifyoustripoutOmegatherewasnotoplinegrowththisquarter.SohowdoyouthinkaboutdrivingupsidefromamultipleashighasitisintheabsenceofconsolidationwherePerrigoisinvolved?Thanks.


Iwilltakeyourfirstpartfirst.SoIneverliketothrowcoldwateronanything,that'ssuchadowner.Ijustwantedto...

JamiRubin (Analyst-GoldmanSachs&Co):

Wellthisisyouropportunitytoclarifythat.Thankyou.


Allright.Allsunshine.Sojustwantedtomakesurethateveryonehadalineofsightinhelpingyoubeabletomodel.Becauseasyouknowwedon'tgooutandgivedetailedquarterlyguidance.Wetrytogiveyouanideaofhowtoshapethearcoftheyear.Andalsowehavethisnewvernacularaswe'reswitchingoverandgoingintocalendaryearmode.

Ifyouweretolayout,asI'msureyouhaveinyourmodels,theoverallmargindynamicsforourcomponentbusinesses,youseetheseasonalityreallyreflectedmoreinconsumerfacingbusinesses,justbecauseofconsumerfacingbehavior.Andwe'recertainlyseeingthisinOmegaaswell.IsthattheJunequarterishistoricallythehighestquarter.There'sjustalotofvolumemovementthroughtheplants,aswebotharesellingthroughaswellaspreparingforfalllaunches.

Youseeslower,typicallyslowersalesintheSeptemberquarter,becauseofthevacationseason,whichisevenexacerbatedandseenmoreinournewEuropeanbusiness.Andit'sjustimportant--alsowehavealotofactivitiesgoingonusuallyinrampingupwithnewlinesandnewproductionintheendoftheDecemberquartertypically.Sotherearemanynormalrecurringbehaviorsthatgooninthesecond6monthsofanycalendaryear.

Anditwasalsoveryimportant,Ihadtocallout,justbecauseoftheinclusionnowofOmegainourpoolofearningsbeforetax,thatifyourmodelhadhad17%effectivetaxrateforeveryquarter,ourmodelhas18.5%inthebackhalfofthecalendaryear.BecauseofthisdynamicasIsaidbeforeabouttherequirementindoingtheaccounting--veryboringaccountingdiscussionhere--ofhowonemustbookeffectivetaxrate.Youhavetotaketheblendedrate,forecastedforthereportingperiod.Andasyouknow,becausewe'reinthisstubyeartransition,theU.S.GAAP--quote--fullyearreportingisthe6-monthstubperiodendingDecember.Sothatstubperiodaccountingwillbemoreatan18.5%range.

Sothatiswhyjusttogiveyoucoloronhowtothinkabouttheshapeofthefull12monthsandtheseasonalitytherein.ThatiswhyIwantedto--itsoundedlikecoldwater--butjustmakingsureyouhadacrispwayofviewing.Sothatyouweren'toverstatingorgettingaheadofjusttheshapeoftheyearandconfirmingtheguidancethatwe'veprovidedalready.


Onyourfirstpart--orsecondpartofyourquestion,Jami,theissueformereallygoesbacktohowdowecontinue--asastandalonecompanyhowdowecontinuetobesuccessful?AndIthinkreallythebestwaytosayitisit'sthatBasePlusPlusPlusapproach.




Lookingatwhatwe'retalkingaboutthere.Clearlynewproducts.JustgettingthreenewapprovalsthisweekIthinkjustisagreatillustrativeexampleofwhatwe--whywe'reexcitedaboutit,whywethink--ifIcouldadd$1billionofnewproductsoverthenext3yearsintoourportfolio,wethinkthat'sgoingtobeanimportantpartofdrivingbothtoplineandourbottomline,becauseasyouknowournewproductstendtobemoreprofitable.

Numbertwo,Iknowthatclearlywealwayslookatquarterversusayearago.Butifyouthinkaboutwhatwe'vedonesequentially,ourConsumerHealthcarebusinessisup$61millionorapproximately9%sequentiallyifyougofromquarteronetoquartertwo.SoIknowthatthat'snotalwaysthewayyoulookatit.ButIdothinksequentialisanotherimportantpartoftheconsiderationastermsofthedirectionofwhatwe'retryingtoaccomplish.

Numberthree,formethisisthefirstquarterthatwe'vehadachancetotalkaboutOmega.Omegawethinkistremendouslyimportanttoourfutureandwhatwe'relookingtotrytoaccomplishaswetakethosebusinessesandwegettherevenuesynergiesandthecostofgoodssoldsynergiesinOmega.Wethinkthat'sgoingtobeanimportantpartofit.AndobviouslyasJudytalkedaboutthebusinesshasdonequitewellinthequarter.AndweexpecttoseegreatthingsfromOmega.

FinalcommentIofferanditreallyis--itreflectsonalsoonwhatJudywastalkingaboutforourcashgeneration.We'regeneratingasignificantamountofcash.WeintendtoputthatcashbacktoworkinM&A.Expecttoseemoreofthebolt-ontransactionsthatwethinkaregoingtobeveryaccretivetoourshareholders.Andwebelievethat'sgoingtohelpustremendously.NotjusttheGSKasset,theYokebeasset,buttheotherassetsthatwethinkareoutthereandwillfitverygoodwithbothourEuropeanbusinessesaswellasourU.S.business.

Sothat'stheexcitementwesee.That'swhywe'reverypassionateaboutourstandalonebusinessandwhatwethinkaregreatprospectsforthefuture.


Operator,thankyouverymuch.Everyone,thankyouverymuchforyourinteresttoday.Weappreciateit.

Ifthere'sanyother--we'llhaveachancetofollow-upoverthenextdaysandweeksahead.Ifthere'sanyquestions,pleasegetintouchwithArtShannonorBradJoseph,whowillbehappytotrytoansweranythingfurther.

Haveagreatday,everyone.

Operator :

Thisistheendoftoday'scall.

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