Good morning, my name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mylan Third Quarter 2019 Earnings Conference Call and Webcast. All participants have been placed on mute to prevent any background noise. After the speakers' remark, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Melissa Trombetta, Head of Global Investor Relations. Please go ahead.

Thank you, Lisa. Good morning everyone. Welcome to Mylan's third quarter 2019 earnings conference call. Joining me for today's call are Mylan's Chairman, Robert Coury; Chief Executive Officer, Heather Bresch; President, Rajiv Malik; Chief Commercial Officer, Tony Mauro; and Chief Financial Officer, Ken Parks. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2019 and the proposed transaction pursuant to which Mylan will combine with Pfizer Inc.'s Upjohn Business in a Reverse Morris Trust transaction. These forward-looking statements are subject to risks and uncertainties that could cause further results or events to differ materially from today's projections. Please refer to the earnings release we furnished to the SEC on Form 8-K earlier today, as well as our supplemental earnings slides, all of which are posted on our website at investor.mylan.com for a further explanation of those risks and uncertainties and the limits applicable to forward-looking statements. Mylan routinely posts information that may be important to investors on this website, and we use this website address as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC's Regulation Fair Disclosure. In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. 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 GAAP. The most directly comparable GAAP measures, as well as reconciliations of the non-GAAP measures to those GAAP measures, are available in our third quarter earnings release and supplemental earnings slides, as well as on our website. Please note that this call released to Mylan's third quarter 2019 earnings and we will be limited in what we can speak about during Q&A regarding the new company, and we will not be speaking about Upjohn Business. Let me also remind you of the information discussed during this call, except for the participant questions is a property of Mylan and cannot be recorded or rebroadcast without Mylan's express written permission. An archived copy of today's call will be available on our website and will remain available for a limited time. With that, I'd like to turn the call over to Robert.

Thank you, Melissa. Good morning everyone with a special hello and welcome to all my own employees around the world and to the Upjohn employees who will be soon joining forces with us. I would like to provide you with a brief update regarding the proposed combination of Mylan and Pfizer's Upjohn Business, which we announced in July. But before I do, I would like to briefly remind all of our Mylan's stakeholders, some of our Board's rationale for this very powerful strategic and financial transaction. The Mylan has a standalone company. This transaction represents an acceleration and combination of our own long stated goal of building a truly one of a kind global platform, positioned to serve and deliver high quality affordable medications to patients around the world. The transaction will be what I described as Mylan's final legacy transaction. The combination with Upjohn, not only achieves our original goal, but it does so well expanding the geographical reach and scale that Mylan start to create on its own. In that context, it also allows Mylan to accelerate the expansion of its broad product portfolio in future pipeline, particularly in the Asia-Pacific region for example in countries like China. At the same time, we do expect Mylan's existing business to benefit greatly from the significant assets that Upjohn will bring to the new company. In particular, the new company will have the benefit of Upjohn's own high quality iconic brand portfolio. Its own highly talented workforce, needed bench strength and expertise, especially in the emerging growth markets and an enhanced commercial platform. Overall, I am very impressed with the talented and committed to Upjohn team members, whom I've met since the announcement. And I know that the Pfizer and Mylan teams are continuing to work hard to transfer all…

Thank you, Robert. Good morning everyone and thank you again for joining today's call. I would first like to reiterate Robert, the Board and management's continued enthusiasm for the progress we're making on the path for the successful close for the combination of Mylan and Pfizer's Upjohn business. As Robert highlighted, the combination not only makes good financial sense, but also will make a meaningful difference for the patients we serve. Importantly, the deal also has the potential to create opportunity for Mylan and Upjohn colleagues around the world. For those Mylan employees joining us on today's call, thank you for all that you continue to contribute to bring our mission to life each day. I'd also like to welcome any Upjohn colleagues who may be listening in. We look forward to continuing to collaborate with you as we work towards next steps and the successful combination of our two companies. As we prepare for the closing of the Upjohn deal, we are still continuing to focus on the previously announced transformation of Mylan business. You'll recall from previous calls, we view this work as an opportunity to unlock latent value within the organization and instill additional focus on economically profitable performance. We have now begun the execution phase of our transformation. Rajiv will share more detail in his remarks. However, at a high level, we have applied a highly disciplined financial lens to the assets we've integrated and built throughout the Company in order to streamline our portfolio, right size investments and improve the efficiency of our company's operating model. Our approach across the board with business transformation has been very purposeful. Purposeful and how we rationalize operations and purposeful and how we invest. You'll see some of the levers we've been pulling reflected in this quarter's results. However,…

Thank you, Heather. I would like to echo my excitement about the proposed combination between Mylan and Pfizer's Upjohn business. As we continue to plan for integrating the Company, I look forward to working with Michael and other members of Upjohn management team to ensure our shared success. At the same time, I can assure you that we as Mylan today, have a steadfast dedication to our standalone execution and are highly committed to finishing the year strong. I'm proud of all of our employees who work tirelessly across the world to increase access to the medicine each and every day. I would like to take a moment to thank them for their continued commitment and hard work. I also would like to welcome any Upjohn employees who are on this call. Let me start by providing an overview of our business results by region. Starting with North America, we had high single-digits net sales growth of 8% in comparison due to previous year. The increase was primarily influenced by the strong execution and performance of several key products. Starting with Fulphila, we have been able to accelerate the expansion of manufacturing capacity and are optimistic to operationalize within the very near term. With the entire backfill growth to market going at a high single-digit and only 23% of the total Neulasta market converted to biosimilars, the underlying demand is there and we're confident that we will play a meaningful role as a continued expansion of this market. Next, the launch of our novel once daily LAMA, Yupelri has met our initial expectations and is now gaining further momentum. Yupelri today has 83% market share of nebulized LAMA market. We see this as a short-and long-term opportunity in a critical therapeutic disease state. Moving onto generic Copaxone, we have strong…

Thanks, Rajiv, and good morning everyone. I'll take the few minutes to provide a quick overview of our financial results for the third quarter. Total revenues of $2.96 billion were 3% higher than the prior year. Excluding the negative impact of foreign exchange, constant currency total revenues grew 6% with all segments growing year-over-year. The growth was primarily driven by new product sales of approximately $247 million with approximately two-thirds of that number, and our North America segment primarily driven by Wixela and Yupelri sales. The remaining amount was split evenly between Europe and the rest of world. This growth combined with higher volumes from existing products was partially offset by the impact of the lower global pricing. In the third quarter, our adjusted gross margins were approximately 53%, compared to 54% in the prior quarter and approximately 55% in the same period last year. The declines for both comparisons are primarily the results of higher sales of the authorized generic version of EpiPen, which carries a lower than company average margin, as well as changes in the competitive environment on certain products. In addition, there were certain inventory write-offs, the largest of which is dated Wixela product resulting from the later than expected approval and launch date for that product. These inventory adjustments are not expected to recur in the fourth quarter. Moving to segment profitability, excluding approximately $58 million in 2019 and $98 million in 2018, relating to the Morgantown restructuring and remediation program, North America adjusted segment profitability grew 1% quarter-over-quarter, which reflects contributions from new product sales, partially offset by impacts from lower pricing and volumes on existing products due to changes in the competitive environment including the loss of exclusivity onto Tadalafil along with higher investments in selling and marketing. Europe segment profitability expanded 5%…

[Operator Instructions] Your first question comes from the line of Randall Stanicky of RBC Capital Markets.

Just two quick ones. One, just going back to the comment on, not viewing the S-4 projections as guidance with Newco guidance coming at closing, should we still be doing the initial Newco guidance when the deal was announced as appropriate targets? And then the follow-up for Rob, the bigger picture one on business development, now that you can become a bigger -- have a bigger brand footprint and given the fragmentation of the smaller cap specialty brands space and there's a huge opportunity to therapeutically consolidate that space. Is that something you guys are looking at? And can you start to looking at, pursuing that now? Thanks.

Thank you, Randall. Let me start with the last question. I think you're spot on. I've read some of your prior notes and have been following you very closely. I think you're really onto something there. I think what we're most mostly excited about in terms of the future outside and you're exactly correct, we are definitely -- Mylan was already moving up the value chain. But with the size that we are now, our investment in partnering especially in the potential to look at future capital allocation and what areas of concentration, the answer is, yes, I do see further alignment to participate in that. Because our portfolio that we're going to be bringing, especially to the Asia-Pacific region is going to present huge potential upside. And I think as a time of the closing, I fully expect that we're going to outline as we talk about future capital allocation and touch on some of these points. In terms of the numbers we gave in July, we absolutely and I understand, I wasn't on Pfizer's call. But look, we stand by what we gave in July for 2020. I'm simply just reminding people to level set them on a going forward basis. Obviously, we have -- I think, very clear vision about what we're faced with. And nothing I see today that has been brought up, not even any new issues that were raised by some who are now getting a better understanding business. Does anything to remotely change my absolute excitement about what we created with the two combinations? And I'm very much anxious and looking forward to be able to show you that once we can get closer to close.

Your next question comes from Chris Schott with JP Morgan.

First one here, can you just comment on the China opportunity for the pro forma company, in light of the temporary dynamics that's being enrolled out is obviously a lot of focus on that market by the street. So maybe just talk a little bit about, what is China look like for the pro forma Company overtime? And just another comment on the pro forma guidance, does it fully anticipate some of these tender dynamics? Second really quick one, can you talk earlier this year about this step up in SG&A investment in the portfolio? Does the Upjohn deal change either the priorities for that investment or the size of those investments as you think about the much broader business that you'll be running over time? Thanks very much.

So thank you, Chris. And I'll just start with your second question, because it really applies to my commentary on the S-4. When you bring it to organizations together, what was in the S-4 or 2 internal companies projections, internal independently company projections. One of the things that you can't see, that's actually well underway to your exact question is. Those projections do not take into consideration for example, the regulatory overlay, what products we may have to divest. Product rationalization between the two organizations and then where do you now put your emphasis when you bring the two organizations together. So your question is well founded, and I want you to know that work is underway. And I do believe between now and closing, we'll have that all sorted out and be able to lay that out for you in terms of, how we see whether it's SG&A, or other costs allocation for the business model and a going forward basis. In terms of China, there is nothing really happening in the China, to be very honest with you that we've not -- I can't say that we didn't anticipate. Now, there's always nuances, I'm not going to say that we're Nostradamus and we can predict everything, especially in China, but there's nothing really there other than there could be a tweak and some of the new rules that they're putting out that that may cause some changes. But I would say in large part overall, there is an anticipation on our side, not for just what's happening in China today, but there's an anticipation for a continuation as that healthcare system over there changes. And what, the reason why we continue to be extraordinarily bullish, is because we now got a true commercial infrastructure over there that is well situated in suited, especially with the massive product portfolio, which that we've bringing. And by the way, this is a product portfolio that's very much needed over there. So, we think that all the stars are aligned to move our massive product portfolio that has already been identified to move into the China pipeline. And also to Randall's question, some of the opportunities we see that we can also, as we go up the value chain, to bring and leverage now the strong commercial infrastructures that the Pfizer Upjohn division now brings us.

The next question comes from a line of Elliot Wilbur with Raymond James.

Couple questions, I guess, most appropriate for Rajiv. First, Rajiv, could you clarify your earlier commentary around the portfolio rationalization process? I wasn't clear to me if that was more of a retrospective comment or perspective. I think you said 350 SKUs and talk about the negative revenue impact. I'm assuming that was largely on that historical not a going forward basis but maybe just clarify that please? And then just a follow-up on insulin glargine, should we be expecting to hear nothing from FDA until March '18? I believe meaning that there would not be a tentative approval, only a final approval issued on that. I'm not sure what is going to happen on that product. And obviously, March 20 is sort of a key date with respect to hitting the FDA deadline?

Regarding the portfolio rationalization, what I had given you was just an example in USA, that what we are undertaking that that if the products are not -- if the products have been commoditized to an extent that they're not earning their cost of a capital, more you sell them, it doesn't make any business rational. So, yes, if when you rationalize those products, these are --there can be some top line impact, but there's no significant bottom line impact. And we have extended this not just to USA, but we have evaluated our global portfolio from that point of view. Now why do we see that this not a onetime exercise, because this is a new discipline we have created. It will be on an ongoing basis. But you would not see a bolus like this, but what I just said, 350 SKU because once you clean it up on our going forward basis, there will be some products here and there will be not bolus like that. Regarding insulin, we absolutely expect to hear from them. I think before March, we believe that this concern about Malaysia facility which we are in the process of addressing will be behind us, in the early first quarter. And yes, the final approval is on the date of the March 20th or something around that that's a date. And we are very confident that it will be -- we'll get our final approval before the transition date to biology.

Next question comes from the line of Umer Raffat with Evercore.

Robert, you mentioned you're comfortable with the numbers previously communicated for 2020, but 2020 still influx because of things like Lyrica, Japan, which will still be part of 2020, but not pro forma or 2021, if I may. So I guess if we were to focus on true pro forma number for the combined Newco and I realize a lot of work is going on. A lot of the street debate is aggregating around number closer to 18 billion than not. I'm curious to what extent you're willing to comment or able to comment on that? Secondly, I'm curious the magnitude of divestitures that might potentially be required because I think that's one of the things that perhaps isn't baked into a lot of the street numbers where they've just put the two together and trying to model out China. So, I'm curious, any early feedback on that? And finally, one for Ken as if I may. Ken, I've looked at the purchase accounting amortization numbers and the share magnitude of it always confuses me a bit. So I was going to ask you, in simple words, what exactly is that? And do you expect it to stay 1.5 billion for the foreseeable future?

Why don't you go first Ken?

Sure. So, over the 1.5 billion is truly as you know when you go to purchase accounting of a certain amount, this, but in goodwill, any other certain amount that's attributed to customer portfolios, products, valuations of assets, and that goes into this amortization bucket that gets amortized over various lives depending on the estimated remaining live with the appropriate asset. The short answer to your 1.5 billion question is and this is on a mile and standalone basis, obviously, there will be other work done, once the Newco transaction occurs, but that that's billion prior should take down slowly overtime, because each year some of the amortization or some of the intangible falls off. So I would expect for the near-term, it may take down slightly, but it will continue for a period of time, because many of these underlying assets have long lives. Especially things like customer assets and products.

I think on the divestitures, at least what I'm being told now Umer. I don't see it as a real significant number, but I don't want to jump out in front of the regulators because they can actually go in one direction or the other, whether it's our products or even their product that they would require to be divested. So I prefer not to jump out front, but I think we said this before and I feel very comfortable. I don't see it as significance, but there obviously is going to be some and my understanding that those discussions are progressing quite well. In terms of, I mean look Umer, I think that's, I really can't comment more on the numbers that we put out that, -- as we were trying to say with the assumption if we looking forward, by the time we anticipate the clothes, I think it was July 2020. Here's kind of sort of what we saw the organization looking like that range that we've given you, that is what it is. Since then and since we've been out trying to discuss with investors and we're not giving any guidance, I actually been following a lot what you have been trying to rationalize. I actually think you're doing a pretty damn good job forgive me, but I really think you're doing a great job and trying to also find that light level set. I cannot wait until we can get closer to close get some of this work done and really clear up for investors just where is, that starting point. And I've made it abundantly clear that starting point from everything I can see and know today without giving any guidance. I am extremely confident that the street will be very pleased about wherever that starting initial guidance is. And the strong EBITDA that's going to come with it because remember, what you're going to see is the rationalization of the portfolio, rationalization of costs based on what we can see out in the future and then the synergies coming in. So that's why we feel very confident that will give you a very strong range of revenue, without me telling you exactly where that starting points going to be. And then an even a stronger range of EBITDA due to the synergies that we intend on bringing in and the cost rationalization that we can see, as we adjust for the various healthcare market, the markets around the world.

Your next question comes to my mind is David Risinger with Morgan Stanley.

So I have a follow-up question for Rajiv. Could you just provide a little bit more clarity so the 360 SKU rationalization. What is that timing? What inning are we in now? Or are we in the first inning? And then for the 360 that you've identified, is that going to be done in a year or two years? Just wanted to understand that in terms of that constraint on the global revenue line? And then Ken a quick question, you mentioned inventory adjustments in the third quarter. Could you quantify the negative impact on COGS and gross profits in the third quarter?

David, that 350 was a U.S. specific number and as, as you go along, the business transformation in USA, as long as, as well as mortgage down remediation, which was more driven -- resolving the complexity issue of the site could not have come like a better time. So both of these are facts, if any of those commoditized products were adding to the complexity, so it was very natural for us to take that block and rationalize it right up front. So, I would say for the U.S., almost 80%, 90% of rationalization is already been done, and it's behind us as we go along rest of the world and the European rationalization will be I think the second phase.

And David on your question around the inventory adjustments and the COGS impact. In the quarter, approximately 30 to 40 basis points on the gross margin, rate, and as we called out, the biggest chunk of that was this, David, Wixela inventory. That was, as we were preparing for commercialization and launch, we built inventory to be sure we could launch on a timely basis and the launch was delayed. I think it's important just to reiterate again, that we do not want an explanation for the third quarter, we have no reason to believe that will require in the four.

Your next question comes from the line of Greg Gilbert with SunTrust.

Rajiv, can you give us your thoughts on the environment that you'll be launching into for the biosimilar Herceptin in terms of your supply situation? And what launch trajectory you're expecting? And then for Robert, going back to you setting the bar in 2020, and then providing outlook from there, You've had some experience, you in the board and might have had some experience setting long-term guidance for the standalone company in the past that seemed to create concerns and controversy around your ability to hit it, whether this step would be required et cetera, et cetera. So my question to you is. How will you and the board approach the concept of long-term guidance when the deal closes and perhaps what was learned from the last time?

I have to tell you, that's a great question. But Rajiv, why don't you go first and then let me respond.

Let me go ahead with Herceptin, and Tony and Kenneth, please feel free to add. First of all as for as the capacity that's not a constraint, capacity for Herceptin is the only constraint, and we have ample capacity to still -- so it's adequate market. Second, I know why we are second, Amgen has been there yet, but we will be the first one to bring in. Hopefully, we are expecting to be the first one to bring in the bold strength, and we will be launching it for a couple of weeks. Yes, there are already, four more approvals out here. We see that. But again in this one, I would say, the two differences if I have to compare. One is part B and the incentives are very well aligned. Also, in this case of, if we have to compare with the Neulasta biosimilar, we see a slower ramp because it will be more. If it will not, it will be lesser of a switch but more prescribed to the newer patient. So you can see a little bit slower ramp on that as compare to that, but we see that shift-wise, ultimately leading to the decent conversion of this road to the biosimilars. Tony, you want to add something?

No, I just might add that our 15 sales reps who are going to be selling this oncology, these very viral products to the marketplace and trained and ready to go. And I think as Rajiv articulated, we're well positioned for success with this launch in the coming weeks.

So, Greg, let me hit what I consider to be a very powerful and potent question, quite frankly. And I think a very fair question. Let me start with the frustration that we, the board, and has had in the past in deal just with the point that you have outlined. And let me tell you why I do not see the same things on a going forward basis. It comes in two parts. The first is in the past, what was -- what management was trying to predict was predominantly, in my opinion, a North American story, a North America story. I don't know what more to say, the U.S. generics business we had a very high class issue. We have some really rare, powerful large opportunities in the pipeline to launch. And when we planned, when we invested in those original programs, I don't think anybody could have anticipated the structural changes that have been put into -- that have come into play in the U.S. market in the North America region, that you had two things happen. And there was a tiny issue of when we would get the approvals from the FDA and then you have the structural changes that actually were occurring and it was almost like one after the other. So, the frustration that the board and I'm certain that a lot of shareholders had, was the predictability of such, a powerful pipeline was very large opportunities And if you don't -- these things don't line up, well, it causes a tremendous amount of oscillation, variability, uncertainty, unpredictability. And then if you put on top of that, the fact that investors have told us time and time again, that if we're not as transparent about all these things that I'm now explained to you,…

Your final question comes from the line of Jason Gerberry with Bank of America.

This is [Sean] for Jason. Two questions here, please. So first is, your partner Biocon is guiding to $1 billion in biosimilar sales by financial year 2022. How does that impact your thinking about some of the opportunities that you have in front of you? And then the second question is more around 2014 standalone Mylan. It seems like you have the tailwinds of a better biosimilar Advair in International Pharma, but not major U.S. ANDA launches. So, are those some of the major pushes and pulls or are we missing anything?

Let me give you the first part, from the Q2 to Q4, we've been very confident and we can go geography-by-geography. There are very gratifying drivers of this Q3 to Q4 ramp whether it's Yupelri in USA, continued market -- Ogivri launch, or Fulphila and Wixela for performance. Europe is being driven by products like Creon, DYMISTA, Brufen and Herceptin, we see that momentum behind these products. And the rest of world whether it's our ARV portfolio, Amitiza, Sebivo and [indiscernible]. So, we have mapped this very carefully and we've been very confident about that. Now about Biocon spend, I cannot -- it's not for us meant on Biocon billion dollar plan. We have shared with you very clearly the portfolio the weather its glargine, aspart, Avastin biosimilar launch of Herceptin. We have our own business case and we remain very confident behind that.

And I'll add the comment on 2020 is that. Look as we get closer to the normal time that we'll speak here about 2020, we'll look at the -- in my term, lay of the land, how close are we to the transaction. Does it make sense to provide Mylan standalone outlook? Or does it make sense to look at the new company together? The reality is, at this point in time, we typically wouldn't start talking about the next year yet. And as we move closer to those dates, we will keep you obviously fully appraise of the Mylan numbers as well as the push and pulls in those.

This does conclude today's Mylan third quarter 2019 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.