Melissa Trombetta - Mylan NV Heather M. Bresch - Mylan NV Rajiv Malik - Mylan NV Kenneth Scott Parks - Mylan NV Anthony Mauro - Mylan NV.

Jami Rubin - Goldman Sachs & Co. LLC Gregg Gilbert - Deutsche Bank Securities, Inc. Aharon Gal - Sanford C. Bernstein & Co. LLC Elliot Wilbur - Raymond James & Associates, Inc. Chris Schott - JPMorgan Securities LLC Gary Nachman - BMO Capital Markets (United States) Liav Abraham - Citigroup Global Markets, Inc. David R. Risinger - Morgan Stanley & Co.

LLC Jason M. Gerberry - Bank of America Merrill Lynch Umer Raffat - Evercore Group LLC Irina R. Koffler - Mizuho Securities USA LLC.

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Melissa Trombetta, Head of Global Investor Relations. You may begin..

Thank you, Gigi. Good morning, everyone. Welcome to Mylan's second quarter 2018 earnings conference call. Joining me for today's call are Mylan's 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 2018. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.

Please refer to the earnings release we furnished to the SEC on Form 8-K earlier this morning, as well as our supplemental earnings slides, all of which are posted on our website at investor.mylan.com for a fuller 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 second quarter earnings release and supplemental earnings slides as well as on our website.

Let me also remind you that the information discussed during this call, with the exception of the participants' questions, is the 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 Heather..

Good morning, everyone, and thank you for joining today's call. A year ago we identified what we saw as an inflection point for U.S. healthcare. At the time, we said that each company's intersection with that point would be unique, including Mylan.

We have continued to approach our industry's evolution from a firm foundation fueled by the fight to provide the world's 7 billion people access to medicine. But during the second quarter, this effort took on new forms, which we believe points to our own inflection point within the industry's broader transformation.

As we've said, our ability to deliver access to medicine is predicated on the continued diversification of our portfolio and geography reach. Investments in these areas in turn drive our durability, which allow us to withstand inevitable headwinds. The fundamentals of our global business remains strong.

However, there is no doubt we are witnessing a continued rebasing of the entire U.S. pharmaceutical system.

Two years ago EpiPen gave us the opportunity to begin the dialogue about the reality of gross to net in our industry and its impact on the patient experience at the pharmacy counter, which is why we launched a generic at half the price against our own brand.

Today, I believe time has shown that EpiPen was not a window into Mylan's business model, but rather a window into a broken and opaque system.

The fact that the President's blueprint to lower drug prices recognizes systemic supply chain issues, and that a single tweak can result in the reversal of several price increases, further exemplifies the difference two years have made. While the dialogue has evolved tremendously, actions by market participants to improve the U.S.

healthcare environment have been less productive. A significant reason for this I believe is that the business of healthcare and the public company framework in which it is conducted have created entrenched interests that have no incentive to course correct themselves.

In fact, we see troubling trends that are doubling down on the current system instead of creating and embracing necessary changes that put the patient's interest first. From continued vertical consolidation to afforded generic utilization of the country's most expensive drugs, we believe current market practices are not sustainable.

Market uptake of our Glatiramer Acetate Injection is a prime example of supply chain tactics capping generic utilization at 15% when two substitutable products have been available for nearly a year. Last year we launched our Glatiramer Acetate with a traditional approach.

And for nearly nine months we worked within the system to increase access to no avail. More recently, we've taken unconventional steps to increase access.

If these steps do not prevail, we will make further moves to do our part where we can to reinstate the necessary balance between innovation and access, as this balance has historically been the one aspect of the pharmaceutical industry to simultaneously drive trillions in savings while ensuring patient access to medicine.

Our experience with Copaxone is representative of the perverse incentives embedded in the current system. Even after substantially lowering the price of our product, the supply chain chooses a higher priced alternative. This provides evidence that the business of healthcare feeds on higher prices, frequently putting system interest ahead of patients.

Rest assured, we will continue to be vocal about measures to improve the current environment. We will also apply strategic learnings to our commercial planning in this period leading up to our generic Advair launch. Our results and our guidance for 2018 are directly correlated with the turbulence in the U.S.

and the disturbing trends regarding access to complex products. Ironically, our commodity products and core U.S. business has met, if not exceeded, expectations. Our investments in complex products and biosimilars on the other hand have disappointed in the near term.

But we believe longer term will continue to drive our growth globally and eventually in the U.S. once balance is restored. Our rebased guidance of $4.55 to $4.90 incorporates the best visibility we have around complex product launch and utilization assumptions in the U.S, resizing of U.S. product opportunity, and remediation of our Morgantown facility.

Europe and Rest of World continued to deliver and be in line with our expectation. While the U.S. market continues to rebase over the next couple of years, we are actively exploring other metrics that could provide better insight into our global performance.

As I stated earlier, our fundamentals are intact and our confidence in executing on our long stated global strategy is especially pronounced as we're continuing to forecast growth in ex-U.S. markets where more than 60% of our business resides.

Over the past several quarters, we have highlighted our Built to Last platform and how it differentiates us from our peers. However, we continue to believe there is a fundamental disconnect between the strength of our global profile and the valuation of our security.

I'm excited about today's announcement by the board, direct -regarding a strategic review committee, which has been formed with independent directors and is chaired by our lead independent director, Mark Parrish, to look into all alternatives to unlock value. Rajiv is going to walk through a couple of updates.

And Ken will cover some of the financials in more detail. And then we will take Q& A. But first, please allow me to thank our employees around the world for their unwavering dedication and commitment to Mylan. Thanks to our board, our management team, and our colleagues around the globe. Our foundation and future have never been stronger.

With that, I'll turn it over to Rajiv..

Thank you, Heather. Before I get into a few product specific updates, I would like to offer a general perspective on our experience with the approval process for the complex products. We have a proven track record in getting many complex generic and biosimilar products across the finish line and approved by FDA and other international regulators.

We believe strongly that continuing to secure approvals on these types of products in our pipeline is not so much a question of if, but rather when. While our confidence in the science and the robustness of our application is unwavering, our ability to reliably predict timing of certain U.S.

approvals has been challenged by FDA's evolving review approach, especially in the case of complex generics. At the same time, we are pleased to experience the process for biosimilar approval, which is much more predictable and reliable.

We are also keenly aware that providing this much transparency about the timing of these approvals and launches can have unintended consequences, especially regarding the market dynamics.

Given destability and market factors, we are reviewing our approach regarding the level of detail we provide publicly around the timing of individual product submissions and approvals. I would now like to spend the next few minutes providing updates on select developments from the quarter. Let's start with generic Advair.

I would like to confirm that we received a minor complete response letter on June 27, which only included labeling and CMC comments. There were no outstanding questions (10:18) clinical, biocleanse (10:19), and facilities.

We quickly responded to the CRL in mid-July, as it required no additional data generation and substantially focused on clarification of existing data. The agency assigned a minor amendment goal date of a standard three-month period following a CRL response.

Because this product has received a priority designation, we remain hopeful that FDA will prioritize this review and complete it earlier than our assigned goal date. We continue to be ready with supply and are prepared to launch upon receipt of approval. Moving on to generic receptors.

We recently received a complete response letter from FDA that requests minor clarifications to the CMC. And we have already submitted our response. As already confirmed, this is not a meaningful financial driver, but it is an opportunity to provide accessible and affordable quality product to the patient.

Now on to Mylan's Fulphila, which is the first FDA approved biosimilar to Neulasta, and the second biosimilar for Mylan and Biocon's client portfolio approved in the U.S. We launched the product in July and are very proud to lead the first wave of biosimilar introduction in the U.S.

Our launch has included a suite of services to further support patients and caregivers with a treatment. We expect a gradual, but sustainable uptake with the product. And we continue to ramp up our capacity as we expand our launch.

So far the launch has been in line with our expectations, which have been recalibrated based on our experience with other complex product launches. I would like to now address EpiPen supply. Unfortunately, our manufacturing partner, Pfizer, continues to experience interruptions in the production of EpiPen.

Currently, Pfizer supplies to Mylan are inconsistent and inadequate in meeting global demand, including in the U.S. As a result, supplies will continue to vary from pharmacy to pharmacy and may not always be available.

We appreciate how important it is for individuals with a life threatening allergy to have access to epinephrine auto injectors and understand the challenges this situation continues to pose for patients.

We are actively exploring every option with Pfizer that would help stabilize supply and are in regular dialogue with FDA and other health authorities around the world. I'll now provide the latest update on our sites in Morgantown and Nashik.

Mylan has always been and remains committed to maintaining the highest quality manufacturing standards at its facilities around the world. At the end of the June, we released a statement confirming that the FDA had completed a recent inspection in Morgantown and made observations in a Form 483.

We have submitted a comprehensive response to FDA and are committed to a robust remediation and improvement plan. As a result of FDA's evolving regulatory expectations, our commitment to maintain high quality standards has left changing industry dynamics.

We have undertaken a restructuring and remediation program in Morgantown during the second quarter of 2018. The program, which includes a discontinuation of a number of products, is aimed at reducing complexity at the facility. These actions have temporarily had a negative impact on production levels, product supplies, and operations.

However, long term these actions will only further strengthen our Morgantown site. As for Nashik, I'm happy to inform you that our warning letter has been lifted, and we are operating business as usual. I would also like to share a few thoughts on the performance of our global commercial platform.

U.S., the largest pharmaceutical market in the world, continues to be a very meaningful market for Mylan, despite some of the current challenges and headwinds Heather talked about. The fundamentals of our business, which include our portfolio, our pipeline, our global supply chain, and our customer relationships in the U.S.A. remain strong.

These are the attributes that give us the strength, durability and ability to withstand the current headwinds and evolving industry dynamics in this very important market. Our Europe and Rest of the World businesses are on track. And we continue to see consolidated high single digit growth in 2018.

Our global key brands like Creon, Influvac, DYMISTA, DONA (15:38) and our ARV businesses remain solid. These visions are further fueled by our new complex product launches, such as Glatiramer Acetate; Semglee, our biosimilar to insulin blocking; Hulio, our biosimilar to Humira; and Hertraz, our biosimilar to Herceptin.

We also continue to strengthen this diverse portfolio with the complementary bolt-on business development opportunity. Before handing the call over to Ken, who will walk you through the financial metrics in more detail, I would like to thank our employees all over the world for their commitment to Mylan and the patients we serve. Thank you..

Thanks, Rajiv, and good morning, everyone. I'll take a few minutes to provide a quick overview of our financial results for the second quarter. Total revenues of $2.8 billion were 5% lower than the prior year.

Europe, which was up 4%, and Rest of World, which was up 10%, helped to partially offset a 22% decline in North America driven by lower volumes on existing products including EpiPen and primarily driven by the timing of purchases of our products by our customers and the impact of the restructuring and remediation program in our Morgantown manufacturing facility.

Adjusted net earnings declined 7% to $551 million. And adjusted diluted EPS decreased 3% to $1.07 during the quarter, which includes benefits from a lower share count following the completion of our $1 billion share repurchase program at the beginning of this year. Moving to segment profitability.

Excluding approximately $87 million of expenses related to the Morgantown restructuring and remediation program, North America adjusted segment profitability declined 28%, primarily as a result of the volume declines in sales from existing products.

Europe's profitability declined 6% during the quarter, driven by slightly lower pricing and volumes, partially offset by the contribution from new product sales. I'll remind you that the new product launches and seasonal products are weighted more heavily to the second half of 2018, therefore driving more growth in Europe in the balance of the year.

Rest of World profitability expanded 26%, mostly driven by new product sales including those in our ARV franchise along with emerging market growth. Both Europe and Rest of World continued to benefit from our ongoing integration activities, as we execute on our plans to further optimize our cost structure.

We also continued to invest in areas such as sales and marketing, as we focus on driving growth in several of our global key brands. Adjusted free cash flow for the six months ended June 30, 2018, totaled $1.3 billion.

That's an increase of 22% compared to the prior year and reflects favorable working capital performance and lower capital expenditures. First half 2018 adjusted free cash flow conversion was healthy at approximately 126% of adjusted net earnings, another measure of the strength and durability of the cash flow generating capability of our business.

During the quarter, we completed a €500 million bond offerings. These proceeds of this offering combined with those from our $1.5 billion offering in April were used to repay a portion of debt maturing in 2018 and 2019.

By extending debt maturities coupled with our strong cash flow generation, we further strengthened our capital structure and increased our financial flexibility, as we continue to execute on our business plan for 2018 and beyond. Our debt to adjusted EBITDA leverage ratio at June 30 was approximately 3.9 times.

That's in line with the previous quarter and our expectations. Over the next 12 months, we intend to repay more than $1.1 billion of debt including €500 million of notes maturing this November and $550 million of notes maturing next year utilizing our solid cash generation.

We continue to expect that our 2018 year end leverage ratio will be reduced towards our previously announced guidance of 3.5 times. We remain fully committed to our deleveraging strategy as well as our investment grade credit rating. Finally, as you heard earlier, Europe and the Rest of World remain on track to our initial guidance.

However, we're revising our overall 2018 guidance predominantly due to the changes in our U.S. business that Heather outlined. We're lowering our previous total revenue guidance range of $11.75 billion to $13.25 billion to our current range of $11.25 billion to $12.25 billion, which is now roughly flat at the midpoint versus full year 2017.

As a result of the lower top line expectations, we've also revised our adjusted EPS guidance to a range of $4.55 to $4.90 per share, down from our previous range of $5.20 to $5.60 a share. Our new adjusted EPS range represents an increase of 4% at the midpoint when compared to the prior year.

Even with this new adjusted EPS guidance, we expect to deliver between $2.1 billion and $2.5 billion of adjusted free cash flow. That's consistent with our initial guidance as we began this year. With that, we'll now open the call up for questions.

Gigi?.

Our first question is from Jami Rubin from Goldman Sachs. Your line is now open..

Thank you. Just a few questions if I may. First on the Morgantown facility remediation plan, which obviously led to lower volumes this quarter. How much of that business, Heather and Rajiv, do you expect to come back? And when? I mean it seems that some of these issues are discontinuations and won't ever come back.

But how much of those lost sales are one time in nature and you expect to come back? Secondly, in terms of the earnings guidance this year in North America.

Are you modeling new product launches such as generic Advair? And then thirdly, just if you can – maybe this is for you, Ken – help us triangulate how the low end of the old guidance was $11.75 billion and $5.20, while the midpoint is now $11.75 billion and $4.72.

Can you explain the difference? The EPS difference is $0.50 and – or $300 million in EBITDA. Can you talk through what that difference is? Thanks very much..

So maybe I'll start, Jami. And then I'll let Rajiv and others chime in. And as far as Morgantown remediation, I think as Rajiv said, we are continuing to totally up that facility and doing it as quickly as we possibly can. So certainly we are hopeful. I think, as Rajiv said this, through 2018 that we will be seeing that continue to turn around.

And that's continuing to be able to rebring volume back up to where we said we were bringing it back up to, which is obviously streamlined from where the facility has been historically. So kind of that rightsizing and remediation is all happening simultaneously..

Yes. And just going back to the Morgantown, it was not triggered just by this FDA inspection. It was a part of our – this year's plan actually to right size it. Because we have observed that it will be very difficult for us to manage this sort of complexity, which Morgantown is, which is 20 billion doses with the evolving FDA expectation.

Having said that, while rationalizing, Jami, we have kept three things in mind. We have stayed close to the customers. And we have packed up the products where there are more than six, seven, eight, 10 competitors. So they're not very – like from the drug shortage point of view, from the patient point of view, we have taken that into consideration.

We have kept – we have made sure that products, if we are the one of the two or one of the three suppliers, we continue to supply, so that there's never a drug shortage or that sort of problem. We have stayed close to FDA. Now yes, this is a very evolving and dynamic business as you know.

And there are always opportunities where you will get opportunity to get back to the products. And in products which are even 10-, 20-year old. And we – once we come back and we are up and running in the full steam, definitely we will go after the opportunities to get back that volume..

And as far as guidance, I'll comment on that and then Ken can revenue. Look, Jami, our rebasing is just that, rebasing. And that low end of the guidance takes into consideration worst case scenario.

So if we didn't receive Advair – obviously you can hear in our tone, we believe not only should we get it, but we should get it ahead of the goal date in mid-October.

So not – we are confident, but certainly want to take the opportunity that that low end – that this range that we've given kind of accounts for that full spectrum of not only with the product launches in the U.S., but again as we talked about, the assumptions that we're putting in as far as utilization.

And also taking into consideration the sizing of now these opportunities, which have changed here pretty dramatically in the last several months when you look at what the brand of Advair is today versus what it was..

And, Jami, I think it's important – I know you called out and Heather spoke to the guidance range on the EPS side. As we move through the year, we obviously narrow the topline guidance range. So I think it's probably important not just to look at the low point, but where the midpoint has moved.

And when you look at that, I think your question runs to the drop in the EPS guidance versus the move in the topline revenues. What I'll reiterate is the change in the revenues go exactly to what Heather outlined in her commentary.

And in fact, the way that she outlined them I think you can kind of size them appropriately based upon the order of complex products, resizing of the opportunities, as well as the Morgantown remediation and restructuring plan.

I'd also point out that the heavier drop on the bottom line is because there are costs going through the system as we remediate the plant in Morgantown and restructure that plant. So that would be the reason for a slightly larger drop on the EPS side versus the movement in the revenue range..

Thank you. Our next question is from Craig (sic) [Gregg] (27:44) Gilbert from Deutsche Bank. Your line is now open..

Yes, thanks. I have two. First for Rajiv, back on generic Advair, you mentioned you're confident, although there were some questions about CMC and labeling. Labeling sounds straightforward. But CMC may or may not be.

Can you talk in any more detail about what that could entail? And then secondly for Heather and/the board, I think announcing a strategic review at the same time you're lowering expectations and in large part talking about and blaming the environment, not just the company, it takes the teeth out of such an important announcement.

So I'm hoping that we can focus back on that announcement. And can you talk about the strategic review and some more details. What range of options are you considering? Are we thinking sale, merger, go private, or other? And what is the timeline for such a process? Thanks..

Okay. Let me start with the generic Advair. As I mentioned, there were no clinical, biocleanse (28:47), and facilities related questions. The questions were around labeling and CMC. And you're right, labeling was straightforward and so was CMC.

Just given the complexity of this whole product and the submission, the major response which we acquired, a lot of this was around the clarifications around the data, which was already submitted. We had a follow on call with the FDA before we submitted that response, just to align that this time we direct them where the data is.

There was no additional scientific data generation required. That's why we could turn it around. So we are very optimistic and confident that I think this is the last turn. And we have given them what they were perhaps they could not able to – they were able to get it from the responses which were already filed..

And, Gregg, as far as the strategic committee, here's what I would say. And as I tried to convey in my opening remarks, I couldn't be more excited that the board has decided to take this next step to unlock value.

I think you've heard me talk about for quite a while being frustrated with the disconnect around the fundamentals and the global profile of our business versus industry dynamics. And I think you called out correctly.

We are absorbing industry dynamics in these macro situations and believe that Mylan's platform is in a better position to absorb those headwinds than anybody else. And as we look across the markets, when you see peers, whether here in the U.S.

or across Europe or Asia, some of the multiples being applied to businesses that quite frankly we believe are very sub-par to Mylan's, is where that frustration grows. And I think you can even look today at where we've rebased, if you took the low end of our range and applied a 10 multiple, you're at $45. So I think therein lies the rub.

And I think our board taking the next step to put this committee together to be evaluating all alternatives. And I would say, there's been -- this is the beginning of that process. There is no thing not on the table. I think that we'll be looking at everything. And certainly as appropriate we'll come back and report out on that.

So that's really about all. There's really nothing more to say at the time about that committee, except I am excited about it. And I think it's the right next step..

Thank you. Our next question is from Ronny Gal from Bernstein. Your line is now open..

Good morning, everybody. I have three questions if I may, if you don't mind. First, going back to Jami's question, more for Ken.

Should we expect a sustainable lower gross margin from Mylan, given the impact of – the simplification of the Morgantown facility? That is, given the size of that part of your business, should we expect like the net of new product launches, the gross margin to be rebased lower? Or is this just a temporary period? And then we kind of go back to the same area? Second, on Neulasta, a couple of questions there.

So first, I know that, here for the marketplace you choose, narrow distribution for the product as opposed to a broad distribution.

Can you talk about how that impacts your strategy? Does that mean you're focusing more on physician practices than the larger hospital chain? And can you talk more broadly about your early observation about the adoption? And last but not least, regarding Advair, it sounds like you are looking for kind of like a 4Q launch here.

Your guidance seems to suggest that you're expecting somewhat of a minor impact on the fourth quarter. Is this not supposed to come in like a channel fill early on? If you can talk a little bit about the dynamics, if an Advair comes to the market and its contribution to the guidance this year. Just so we don't kind of mis-model this..

Yeah. Ronny, before Ken answers, I just want to put in perspective. Morgantown is a very meaningful facility for us. But then, if you take our North American business, let's not forget a very important contribution from the class thermal (33:04), from the semi solids, the ointments, the injectable business, the Xulane, also the patches like that.

So there are – and also in the Morgantown when you pick up, there are some products which make money. There are some products which don't make money. And while we are rationalizing, we are taking all this into consideration to protect as much as we can in a very responsible way and can get back to that as soon as possible. Now I'm handing over to Ken..

And he answered it well. So I don't have a lot to add to it, other than the fact that also one of Jami's earlier questions was the temporary impact versus the longer impact of that.

And as Rajiv and Heather said, we believe that the – effectively the part of our business that we want to bring back we're comfortable that that remediation and restructuring is going to be completely effective for Morgantown. And therefore, our profitable business will come back into the portfolio.

And we've made some choices around certain products as we simplify and make the Morgantown facility less complex. So overall, this impact is temporary and we believe that our profitability levels are sustainable..

And, Ronny, I think you asked the question around our Fulphila launch. And what I would say first and foremost is we're very happy with this launch. We're on track with our expectations. We are partnering with clinics, with payers, especially oncology distributors and GPOs. Yes, it's very surgical as you commented.

But we have great confidence in terms of how we launch it. And we are really monitoring and happy with where this uptake has been here in the first month of launch..

Thank you. Our next question is from Elliot Wilbur from Raymond James. Your line is now open..

Thanks. Good morning. Just want to ask a line of questioning around Copaxone market dynamics. So I guess the company's recent WACC price adjustment got a lot of attention and still seems to be a subject of debate as to how much of an impact that's actually had on net pricing dynamics.

And I guess what – sort of given the rebate dynamics that Teva has put in place and the system's desire for rebates versus savings, what exactly are you doing there in terms of trying to drive incremental uptake? And in fact, has there been much of a change in terms of overall net pricing dynamics sort of post that WACC price adjustment? And then second question is, can you just help us a little bit more in terms of thinking about EpiPen supply outside of sort of the just general commentary on your overall issues? Is there anything you can help us with in terms of fulfillment rates or what we should be thinking about in terms of a relative ability to supply in terms of units versus historic rates that would be helpful? Thanks..

Thank you. So we'll start with Copaxone. I think that what's interesting is, your question is, does lowering the price really impact the channel? And I think that that probably – your question in and of itself I think highlights the perverseness of the system we're operating in. And especially as we're seeing around complex products.

I mean I think the fact that we lowered it by 60% and the channel is incentivized to continue to stick with higher priced options is in and of itself the problem. And I think if you look at the role that the generic industry has played, there has been this balance of innovation and access.

And what we're seeing, and why I said they're troubling trends on the complex side, is we're seeing low single digit to 20% generic utilization. And that's what we believe is not sustainable. So as I said we started traditionally with our launch. We moved to unconventional. And I can tell you we're not going to stop.

I think that there are limited tools, but there's other tools out there that we can do to continue to highlight the savings that payers, especially employers, should be reaping from the access now to a generic alternative.

And I think that as we continue to publicize that drop in price, I think that it is causing – we definitely are starting to see a lot more conversation and questions being asked about why they would be paying so much more for the brand when the generic is available and seeing what our WACC price is. So I think that we're continuing those discussions.

And like I said, we won't waste a lot of time to continue to do what we need to do to not only improve access, but quite honestly, for us it's about totally removing what we believe is unsustainable for these complex products. You look at the top 20 most expensive drugs in the country right now, only a couple have generic equivalents.

There's a lot more coming. And we believe it's absolutely necessary for this country to adopt higher generic utilization rates and allow that access to flow when there's a biosimilar or a generic equivalent available on EpiPen. Yeah..

On the EpiPen supply..

It's hard to – it's been very challenging because our EpiPen supply interruption.

While we have been able to anticipate along with the Pfizer team, working with them and working with the FDA, and made several improvements to improve the supply chain, a lot of it also too from Pfizer point of view is dependent upon the incoming – the component and the quality of the component. And we have good months of supply from Pfizer.

And then suddenly we get very erratic and which is really 30%, 40% off than what we are expecting, just because of the quality issues, which can come up. So first of all, we are staying very close, as to Pfizer is the right company to answer. We are working very closely with Pfizer on this to do everything possible.

And because we understand the importance from the patient perspective. And we'll do everything in our capacity to work with them and work with the FDA to improve this situation as far as possible..

Thank you. Our next question is from Chris Schott from JPMorgan. Your line is now open..

Great. Thanks very much for the questions. Just two here.

First, on the strategic review, how are you thinking about short term value creation and just where the stock is trading today in terms of the longer term business and the structure? And I guess as part of that, how practical would it be to think about splitting the company? Or is the business integrated at this point where you'd be thinking about significant dis-synergies? Just sort of thinking about the range of options that are available to the company.

And my second question is just on guidance and your approach to guidance setting. I guess this the second year in a row where you start the year optimistic on new launches. You've had to come in midyear and cut numbers for items that are out of your control.

And I'm just wondering, was there any thought of taking a more conservative approach as you set this guidance? Or as we think about setting future guidance for the company? Thank you..

Yeah, Chris. Thank you. As far as the strategic review, I would say it's too premature to talk about what's the art of the possible. What I can tell you is as it states, that it's looking at all alternatives to unlock that value. And I think that will continue to be an ongoing review about what would unlock value for shareholders.

And I think that like we said, taking that next step is important. And we'll report back when and if appropriate.

And as far as guidance, I think that as I stated just a few minutes ago, that we absolutely have tried to, to the best of our ability, with the – with – given where visibility is around complex products and what – are continuing to push and be able to take – use our platform to hopefully unlock some of these issues and the blockage that we're seeing in generics, like I said around biosimilars and complex products.

We tried to take this guidance and make sure to incorporate all of that. Worst case scenario. So that we appreciate that. And I appreciate you stating that over the last couple years, there could have been things out of our control that caused that rebase.

We do believe that for Mylan, this does incorporate that rebase and taking the worst case scenario at that, at our lower end. I think for the U.S. as a whole though, that this continuing rebasing is going to happen for a couple of years.

But I think given where we are with our products and the launches that we anticipate, this range should take all of that into account. And we look forward to continuing to definitely grow from this point forward..

Thank you. Our next question is from Gary Nachman from Bank of Montréal. Your line is now open..

Hi. Thanks. Heather, the cautious commentary on greater challenges with complex products. You've done a good job putting together a very big complex portfolio. So what do you think really has to change for dynamics to improve there? Is it even more competition in some of these categories? And do you need to diversify even more away from the U.S.

market longer term into ex-U.S.?.

Yeah. No. Thank you. Let me start with our global business. We've talked about the opportunities in the pipeline that we've been investing in over almost the last decade as global opportunities, whether it's biosimilars, insulins, Copaxone. These are all things that are feeding our global commercial platform. Obviously, the U.S.

as being a very meaningful marketplace, when we see that stalling of generic uptake, it's, as I said, concerning. And I meant every word I said in my opening commentary that they're troubling trends. I believe that they're not sustainable.

You cannot be facing the healthcare expenditure that we're looking at as a country and not expect generics to play the role they have historically, which is saving. It's the only part of the industry that I think has worked like a market. I don't believe this is about competition quite honestly in this marketplace.

I believe that we've got significant challenges to the way formularies are tiered. And I think that, I would like to call to action, that the C-suite in corporations around the United States be looking at those formulary tiers. The fact that generics – that access should flow historically. There have been brand, non-preferred brand, and generic.

And once there was a substitutable or an interchangeable product, that access slowed. And that's what kept prices down for our – the payers and the system from government to employee. When you start blocking that access and putting them on different tiers you see what's happening in consequence to that.

You're down in the high-teens as far as utilization, versus 90% in our typical oral solids or small molecule. I think the other issue is the specialty tier in formularies. That specialty tier isn't tiered against brands and then substitutable products or biosimilars.

And I think we're really going to have to revisit how that works, to allow – to ensure that that access flows. And quite honestly, that's been the feedback we've been giving to the President's blueprint.

That there has to be that access, or it really ruins the model on every other aspect as far as how the industry has worked and is going to have to work as far as sustainability. So I'm very hopeful that we will be able to – these changes will be able to continue to be adapted.

And there's going to be access forced for these generic alternatives, which quite honestly has been the backbone of the pharmaceutical system here in the United States. And I think we can all agree that as we look at these expenses, the top 20 products, I think more than half of them are biologics.

So it's going to be absolutely necessary that we fix the formulary issue..

Thank you. Our next question is from Liav Abraham from Citi. Your line is now open..

Good morning. Rajiv, perhaps you could address some of the comments you made on the call regarding the generics environment in the U.S. We've been hearing from some of your peer commentary around stability in pricing dynamics. Not amongst your more complex products, but the base business. If you can just comment on that, that would be helpful.

And then secondly, I'm not sure if I missed this. But can you quantify your revenues from new products in the quarter? I believe last quarter you talked about $100 million in new product revenues and about half of that being in the U.S. Please correct me if I'm wrong.

But I'm not sure if I missed that number, but if you could comment on that, that would be helpful. Thank you..

Yeah. Maybe I'll just kickoff as it relates, Liav, to the generic environment commentary you'd asked. And I would say we have seen a stability, a more stable market from a pricing perspective from our core business here in the U.S. And we're very optimistic about how that rolls into the future..

So on new product revenues, Liav, we did quantify that for you last quarter. This quarter, it's about $200 million of new product revenues flowing through. And I would say about half of it is in the U.S..

Thank you. Our next question is from Dave Risinger from Morgan Stanley. Your line is now open..

Yes. Thanks very much. I just was hoping to get a little bit more color on whether your guidance midpoint is conservative? The reason why I asked the question is that Mylan seems perplexed as to its low valuation relative to some competitors in the field of generics.

But some competitors tend to provide very conservative guidance that investors can be assured will be beaten, which then enhances the PE multiple. And so I'm hoping that your rebasing is yielding a midpoint that will prove conservative. But I'm not sure if that's the case or not.

So maybe you could just provide some more perspective on your level of confidence in the midpoint of the guidance and your policy for providing guidance going forward? Thank you..

Sure, David, and thank you for your question. I guess I'm a bit perplexed about maybe what peers we're talking about. I know a lot of our peers have significantly rebased their business over the – some point in time over the last 12 months.

So again, I think that was the point we were making about the guidance that we've put out today is that we believe that it incorporates the worst case scenario at the bottom end. And we should be able to grow from here. So I can assure you our intent is to be giving you guidance that we certainly believe that we're going to meet.

And so we've taken all that into consideration. And I just believe – that's why I made the point earlier – that this has been our inflection point with the industry and the turmoil that the U.S. is in.

And I think that as a complex product, as we continue to hopefully see that steady growth from a utilization perspective will really be what allows Mylan to continue that growth from here. But we believe we've incorporated where that stands today in taking, like I said, the worst case scenario into consideration..

Thank you. Our next question is from Jason Gerberry from Bank of America. Your line is now open..

Hey, good morning. Thanks for taking my questions. Just a couple. Just as I think about the complex generic opportunity, it sounds like absent changes to the system, is the only catalyst for rapid generic adoption just more approvals? And then a shift to multi-source pricing, such that the brand company just isn't able to contract as effectively.

So that's my first question. And then just on the biosimilar opportunity.

Can you confirm, are there any supply issues that you have out of the gate? Just kind of curious for a little bit more color around the delay in terms of the launch? And then lastly, will you in the future be breaking out biosimilar revenue? I know that's one thing that investors – some of your stickier businesses like OTC and biosimilar, which typically command higher multiples.

Just sort of curious if you'll be thinking about providing investors with greater visibility? Thanks..

Okay, sure. I'll start with the multi-source question. Here's the irony again of I think where we find ourselves at this moment. The commodity type products, our core business as we said is meeting our expectations.

Because of the broad portfolio that we have and those levers that we have to pull with all the different dosage forms and the channels that we operate in the U.S. system.

When you look at the complex products, the reason we've invested and have continued to bring not only our science, now having a proven track record, but our ability to launch and to supply these products, is because there is a high barrier to entry. And there's not going to be five plus players, at least not in the near term.

And you would think that a company would get rewarded for that investment and bringing those alternatives to the marketplace. And instead, what we're seeing right now is just blocking and using that generic as a stalking horse to play the tactics that are blocking it.

So what I can tell you is that I don't think this is about getting four or five competitors. I don't even think that's reality. I think what we need to focus on is requiring formulary access to generic alternatives. And that's what we're pushing for. And that's going to make the market work effectively and efficiently as it has been meant to do.

And I think that's what we'll continue to fight for. And that's where you'll see the difference in a meaningful way about utilization uptake..

And regarding your question on biosimilars, I would say, while modeling the biosimilars, we have taken into consideration the current launches around the world. And we have modeled a ramp, a slow ramp as compared to the oral solid generation and all that. So you can see a slow ramp and longer NUD (52:09), and that's what we are modeled.

We have three launches planned in the second half of the year. The one is a Neulasta for U.S.A. The second is the Semglee, the biosimilar to the insulin in Europe. And the third is towards -- in the last quarter we have Hulio, which is the biosimilar to the Humira in Europe. And we don't see any supply constraints for any of these things.

Yes, supplies do get ramp up as we have modeled them according to our launch models..

Thank you. Our next question is from Umer Raffat from Evercore. Your line is now open..

Hi. Thanks so much for taking my questions. Heather, you shared your thoughts on the disconnect between the intrinsic value versus the market view. And my question is, there must be a business where you think the disconnect is the most. Which one is that? And what part of the company is that? One.

Second, maybe it will be interesting to get your thoughts on just the weakness in Europe and whether it was driven by Morgantown or other factors? And then finally, Rajiv, I know you mentioned CMC issues on Advair.

My question is, are you no longer worried about the new drug device combo guidance from FDA, which it had issued separate from the product specific guidance? Thank you..

Okay. And, Umer, I'm sorry.

On your first question, I didn't quite get what you said about what do I think is working? What was the last point of...?.

It was more, what part of the business you think has the most disconnect in value? Is it a certain part of the company? Or a certain geography, et cetera?.

Okay. No, here's where I think the disconnect is. We have U.S. centric shareholders that live and breathe the United States and are living the turmoil that we're seeing every day from Presidential tweets to the turmoil and the turbulence that we're facing.

So if you – with that mindset, you can understand that you can obviously become very absorbed with what's happening here in the U.S. I think where we believe that that disconnect is, is really measuring our global profile.

And the fact that more than 60% of our business is outside the United States, we're going to continue to diversify, both portfolio and from a geographic reach. And I think that's what's allowed us to absorb the volatility. I mean if you look at our business 2017 to 2018 basically with where we've just rebased, we're flat.

And I think in the environment, especially here in the U.S., that that's pretty heroic. So I think that what – where we fundamentally see that is not getting credit for the global profile that we have created. And that's what we're going to continue to go figure out how to unlock that value. As far as Europe I would not say weakness, but....

Morgantown is not a reason for anything to do with Europe. Morgantown is predominantly – when I say predominantly, 95% plus is U.S. centric supply side. So that is not a reason for any weakness in Europe too. The question – and your third question was on drug device, the new guidance which is on the drug device.

And let me just confirm the CMC questions included some questions on the drug device. But they were about the clarification on the data, which we have already submitted, and some additional scientific justification on some of that. So the new guidance has not played into a new question from here..

Let me add a comment here, because we've had several questions on guidance, whether it be breaking out biosimilars or how do we set guidance. I don't want to let the opportunity pass to reiterate the commentary that Heather said in our opening comments.

That as we look at this business, we continue to look at the performance metrics that we think are best to measure this business. So as we move forward, we're going to be looking at things beyond EPS, as to the factors that we'll be talking both internally and externally about how do we guide this business.

And we spent a lot of time talking about EPS ranges this morning. But those are relatively short term metrics. And I think I just want to make sure that we all understand as we talk about not just this quarter and this year but going forward, that we will be looking at other metrics to guide this business..

Thank you. Our next question is from Irena Koffler from Mizuho. Your line is now open..

Hi, thanks for taking the question. On the subject of guiding the business, I think Rajiv mentioned that you're not going to provide as much granularity about the timing of product approvals in your communications.

Can you expand on that? Just because there's already not a lot of granularity in the product by product sales? So if we don't have timing of potential approvals, it just gets even harder to model the business. And I was just hoping you can expand on that. Thank you..

So look, I think we give – we have given historically down to the day that we think something is going to get approved. And I think all that you heard us reiterate is that kind of predictability and certainly just doesn't exist in the system right now.

So it's not – we can't give a date and then get punished for missing that date, when that date has uncertainty to it. And so all we're trying to warn is that our guidance is taking that in. And I think as Ken just reiterated, which is why we're continuing to search for metrics that will allow us to guide on how our performance is.

Obviously, new product and new product launches is what our business is all about. So those are extremely important. And as approvals come to the market, obviously the market is very aware of those products being in the marketplace.

I think we're just trying to sensitize that there's a cautious balance between trying to be predictive in a non-predictive environment when it comes down to the minute of the day. And I think whether something is off a day or a week or a month, certainly it's our responsibility to guide those large drivers. And we will continue to do that..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect..