Arthur J. Shannon - Vice President of Investor Relations & Global Communication Joseph C. Papa - Chairman, Chief Executive Officer and President Judy I. Brown - Chief Financial Officer and Executive Vice President.

Louise Alesandra Chen - Guggenheim Securities, LLC, Research Division Elliot Wilbur - Needham & Company, LLC, Research Division Jami Rubin - Goldman Sachs Group Inc., Research Division Randall S. Stanicky - RBC Capital Markets, LLC, Research Division Gregory B. Gilbert - Deutsche Bank AG, Research Division Sumant S.

Kulkarni - BofA Merrill Lynch, Research Division David Risinger - Morgan Stanley, Research Division Marc Harold Goodman - UBS Investment Bank, Research Division Christopher T. Schott - JP Morgan Chase & Co, Research Division Linda Bolton-Weiser - B. Riley Caris, Research Division Timothy Chiang - CRT Capital Group LLC, Research Division Douglas D.

Tsao - Barclays Capital, Research Division Annabel Samimy - Stifel, Nicolaus & Company, Incorporated, Research Division.

Good morning. My name is Vanessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Perrigo to acquire Omega Pharma NV to expand leadership position across Europe and announces fiscal 2015 first quarter results. [Operator Instructions] Thank you. I would now like to turn the call over to Mr.

Art Shannon, Vice President of Investor Relations. Please go ahead, sir..

Thank you. Good morning, everyone, and thank you for joining us to discuss Perrigo Company plc's results in the first quarter fiscal 2015 and its proposed acquisition of Omega. I hope you all had a chance to review all of our releases discussing our announcements, which we issued earlier this morning.

Copies of the press releases are available on our website at www.perrigo.com. Also on our website is the slide presentation for this call. Before we proceed with the call, I'd like to remind everyone that during the process of this call, management will make certain forward-looking statements.

Please refer to the important information for investors and shareholders and safe harbor language regarding these statements in our press release issued this morning and on Slide 2 in the accompanying investor presentation. Following management's review of the presentation, we will open up the call for questions from the audience.

I'd like to now turn the call over to Perrigo's Chairman and CEO, Joe Papa.

Joe?.

Thank you, Art, and welcome, everyone, for Perrigo's conference call to discuss our quarter 1 fiscal year '15 results and, importantly, our announcement of the combination of 2 great companies, Perrigo and Omega, creating a top 5 global over-the-counter company. Joining me on the call today is Judy Brown, Perrigo's Chief Financial Officer.

This morning, I'd like to take the opportunity to provide you a brief overview of our exciting news, followed by comments regarding the first fiscal quarter. Then I'll turn the call over to Judy to discuss the first quarter highlights. I will then provide the strategic details of the transaction as well as an introduction of Omega.

Finally, Judy will walk through some of the financial details of the transaction before we open up the call for questions. First, beyond the results we announced today, this is really a great day for both of our companies, our employees, patients, customers and shareholders.

Today, we announced that Perrigo and Omega have entered into a definitive agreement under which Perrigo has agreed to acquire Omega for EUR 3.6 billion or USD 4.5 billion through a combination of cash and stock. This purchase price comprises of EUR 2.48 billion to acquire Omega's equity in addition to the assumption of EUR 1.1 billion of debt.

We welcome a great company that Marc Coucke and his team have built, an organization that is built by pharmacists and for pharmacists. One of the real keys to this transaction is the immediate scale and broadened footprint this combination provides.

Omega instantly enhances our scale and broadens our footprint, providing us with immediate access to an established commercial network connected to 211,000 pharmacists, 105,000 retail stores and 3,900 parapharmacies.

We will now be able to participate in the attractive $30 billion European OTC market, leveraging Omega’s commercial infrastructure and leading OTC product portfolio to generate consistent growth, as Omega has done since its founding in 1987. We are excited to welcome this great company and all of its employees to the Perrigo family.

We will discuss the acquisition in much more detail, but let's review some of the highlights for the quarter. On Slide 4, our quarterly performance, highlighted by all-time record first quarter net sales of $952 million, and continued adjusted net income and adjusted operating margin expansion. Moving on to Slide 5.

As we discussed in our August earnings call, our fiscal first quarter was, in fact, a challenging comparable versus this time last year. That being said, we still recorded an increase in adjusted net income of 30% to $188 million or $1.40 per diluted share, in line with our expectations.

A record $952 million first quarter net sales performance reflected expected lower year-over-year seasonal sales volume and contract sales in our Consumer Healthcare segment and an 11% growth in the infant formula category, offset by disappointing sales in our VMS nutritional category.

Our team remains focused on launching over 100 new products in fiscal year '15, the majority of which will be expected to be launched in the second half of the year. In our Specialty Sciences segment, we have been very pleased with the performance of the Tysabri royalty stream. It's a great asset that's generating terrific cash flow.

Also, importantly, I would like to announce that we have relaunched shipments of the store-brand version of generic Mucinex 600mg ER back to the market. This was a difficult task. But with a dedicated team determined to get the product back to the market, we were able to work through the production issues for this very hard-to-develop product.

It's great work by the team to relaunch our generic Mucinex. Now I'll hand the call over to Judy to discuss the quarter in-depth.

Judy?.

Thanks. Good morning, everyone. As you just heard, the quarter wrapped up generally in line with the expectations that I had discussed on our conference call in August when I tried to provide some conceptual guidance for the first quarter. Adjusted net income grew 30%, just below our full year guidance range of 31% to 37% growth.

And we remain committed to our full year 2015 guidance expectations, given our long list of expected new product launches, particularly from January to June. Now let's move directly into the business segments starting on Slide 6.

The change in Consumer Healthcare net sales was the result of an increase in sales of existing products of $20 million, primarily in the smoking cessation category; $7 million in new product sales; and $6 million attributable to the acquisition of OTC products from Aspen.

These combined increases were more than offset by a decline of $78 million in sales of existing products, primarily in the cough/cold, contract manufacturing and analgesics categories. I'm sure you'll all like to understand why we saw year-over-year declines in CHC. So let me walk you through the key drivers.

First, as I previously stated, in the first quarter of 2014, we shipped a large amount of OTC product as retailers pushed for an early buy-in to the season.

Due to the relatively milder severity of cough/cold/flu incidents and lower retail foot traffic levels seen last winter, many of our retail customers remain cautious about repeating that buying pattern this season. Second.

In the second fiscal quarter of 2014, we noticed that a large contract customer resumed production at its own facility, reducing the need for products sourced from Perrigo. While this headwind in our contract manufacturing sales will annualize after next quarter, it nonetheless was a year-over-year negative to CHC sales this fiscal quarter. Third.

While we are excited about the relaunch of the Guaifenesin 600-milligram ER product, the absence of sales last quarter from this specific product impacted revenue for the quarter.

On a brighter note, and as discussed last quarter, the smoking cessation category continues to perform well, particularly due to sustained robust sales of the store brand versions of Nicorette mini lozenges with the continued absence of a national brand competitor from shelves at this time.

Adjusted gross margin contracted due to the sales mix dynamic I just mentioned, including relatively lower sales in our Animal Health category. We invested more in CHC R&D projects versus the first quarter last year, and DSG&A dollars spend was relatively lower due to continued cost discipline and relative timing on new product launches.

As a result of these investments, adjusted operating margin decreased year-over-year. On Slide 7, you can see that net sales within the Nutritionals segment were $125 million. Net product sales of $7 million were offset by $6 million in lower year-over-year sales, primarily in the VMS and infant/toddler food categories.

The greatest driver of net sales this quarter was the infant formula category, which grew more than 11%, driven by organic formula and the resumption of shipments to Asia versus this time last year.

This positive product mix, along with greater efficiencies at both our infant formula and VMS manufacturing facilities, led to gross margin expansion of 290 basis points. Operating margin included increased investments in new products. Now turning to Slide 8.

You can see that the Rx net sales were $195 million as new product sales of $8 million and $4 million of net sales from the Fera product acquisition were offset by $11 million in discontinued products. As expected, net charges taken to meet contractual obligations associated with pricing programs also impacted net sales.

The benefits of these programs are expected to commence in the second fiscal quarter. Gross margin was impacted by the net charges I just described, while operating margin was impacted by higher clinical costs and continued investment to grow the specialty pharma sales force.

We expect these investments to continue to grow due to the Lumara acquisition. Next on Slide 9, you'll see that API's first quarter net sales were $25 million, due to a decrease in sales of existing products of $18 million as a result of increased competition on certain products. Margins were impacted primarily by the expected loss of U.S.

exclusivity on the generic version of temozolomide and lower absorption rates versus this time last year. Turning to Slide 10. Specialty Sciences revenue were $92 million comprised of Tysabri royalties at 18% for the entire quarter, in line with our internal expectations.

I'd also like to note that our corporate administrative costs increased by approximately $10 million. This increase was due primarily to the Elan acquisition and approximately $4 million related to M&A activities. Now some quick highlights on our balance sheet.

Excluding cash and cash equivalents, working capital was $725 million at the end of the quarter, up from $677 million on June 28, 2014, due to timing on payments of accounts payables and accruals.

As of September 27, 2014, total current and long-term debt on the face of the balance sheet was $3.2 billion, essentially flat sequentially from last quarter. Excluding cash and cash equivalents, our net debt-to-total capital at the end of our first quarter fiscal 2014 was 20.9%.

Net cash flow from operations for the first quarter was a record $195 million, up almost $100 million from first quarter fiscal 2014. On Slide 11, you'll see we're affirming our consolidated stand-alone guidance for fiscal 2015. Stating the obvious, we just signed our agreement with Omega a few hours ago, and it is unclear when the closing will be.

So this guidance in no way reflects any impact of the transition. Stand-alone Perrigo numbers only. So while we are not making any changes to the consolidated stand-alone guidance, as always there are multiple moving parts.

The current guidance now takes into consideration the relaunch of Guaifenesin 60 milligram ER as well as improved expectations on certain Rx new product launches.

Weighted against these positive factors are increased risk adjustments for the corticosteroid nasal products, approximately 10% lower year-over-year sales in the VMS category and lowered revenue expectations for our API segment. The fine-tuning of these risks and opportunities leads us to the updated segment guidance you see on this slide.

Summing all this information up and as you model our second fiscal quarter 2015, you should continue to assume new product sales of greater than $235 million with approximately 70% of these sales expected in the second half of the fiscal year, as well as continued growth in our base business.

This dynamic is expected to produce second quarter fiscal '15 year-over-year adjusted net income growth towards the lower end of the full year fiscal year 31% to 37% guidance range you see here. Now I'd like to turn the call back to Joe..

Thank you, Judy. Turning to Slide 12. As I mentioned at the beginning of today's call, today is a great day for both our companies, employees, patients, customers and shareholders. For many years, we have discussed the -- our interest in expanding our business model globally.

Last year, we were excited to share with you our Elan transaction, established our Irish headquarters and the European gateway.

Today, I'm very excited to say in one transaction, we acquire a comprehensive commercial European infrastructure, a leading portfolio of OTC brands, an extremely talented management team and country-by-country regulatory and consumer marketing expertise, which will -- all combined, will enable us to provide quality health care products to hundreds of millions additional consumers.

First, this transaction expands our leadership position in OTC through Omega’s strong and established commercial infrastructure. Omega further enhances the breadth of our already sizable OTC product portfolio and accelerates the distribution of our combined companies' offerings. In fact, combined, we've become a top 5 global OTC company.

Second, this transaction advances our stated strategy to accelerate international growth, substantially diversify our business and establish a durable leadership position in the European OTC marketplace. Omega immediately enhances our scale and broadens our footprint, establishing the foundation for continued strategic bolt-on acquisitions.

Third, this transaction strengthens our financial profile. It provides us geographic diversification of our revenue and cash flow. As we execute this transaction, we will accelerate our attractive industry-leading growth rate and margin profile.

Over the last 12 months ending September 30, the combined company would have generated pro forma revenues of $5.7 billion and adjusted operating income of $1.3 billion. Turning to Slide 13. I'm going to dive a little deeper into our vision behind this transaction.

Before we discuss many of the compelling aspects of the acquisition, let me first take a moment to explain the advantages of Omega’s commercial infrastructure. At a high level, the European OTC market is highly fragmented but very desirable, a $30 billion market opportunity.

Pharmaceutical distribution across these countries collectively represent a very high barrier to entry as a result of the restrictions on pharmacy ownership that makes our Perrigo mass customization more difficult to replicate in Europe.

One of Omega’s key advantages is the relationships that Marc and his team have developed over the years with individual pharmacists and retail locations. As a result, Omega will provide us with access to 211,000 pharmacists, 105,000 retail pharmacies and 3,900 parapharmacies. This platform can't easily be replicated with a piecemeal organic growth.

So this transaction aligned very closely with our strategic M&A priorities that we've discussed with you in the past, which are strategic fit, segment attractiveness, materiality and competitive fit. You can see on this slide our acquisition of Omega comfortably aligns with all 4 of these priorities.

First, the transaction gives Perrigo access to a top OTC product portfolio and enhanced scale outside the U.S. though Omega's -- through Omega’s significant commercial presence and distribution network across 35 markets internationally. This includes a leadership position in the durable European OTC cash pay market.

Second is the attractiveness of the European OTC market in general. It is a $30 billion market opportunity. With Omega's strong presence in both established and emerging growth economies, we anticipate leveraging their growth track record.

Third, Omega provides us with a strengthened financial profile through the geographically-diversified revenue and cash flow streams. Finally, there's the competitive fit of Omega within Perrigo.

Through the companies' combined geographic diversity and scale, there are opportunities to generate top line synergies by driving products from both companies through complementary U.S. and European commercial channels.

Further, with the application of the supply chain excellence across Omega’s footprint, we expect to drive additional efficiency and operational synergies through the combined organizations. So turning to Slide 14. Here, you can see a brief overview of Omega.

Headquartered in Belgium, Omega is a leading OTC company with a significant commercial infrastructure and regulatory capabilities across 35 markets internationally. Omega is currently led by an experienced European management team with years of experience in the European OTC market and approximately 2,500 employees globally.

We are excited to have these employees contribute to Perrigo's continued growth. Within this employee base, we gained a talented sales team of approximately 1,100 people, a new necessary competence essential for success in Europe. Turning to Slide 15. You can see the OTC brand leadership position Omega has established within this market.

In particular, Omega's approximately $1.6 billion of trailing 12-month revenue as of September 30 positions it as one of the top 5 European OTC companies and the #1 or 2 player in 4 individual European markets.

Additionally, the company owns many leading cough and cold, skin care, pain relief, weight management and gastrointestinal treatment brands among a portfolio of approximately 2,000 products. Slide 16 lists Omega’s top 20 brand portfolio. The important item to note here is the number of products that are #1 within their respective markets.

For instance, Omega currently holds the #1 nasal decongestant, the #1 weight management supplement, the #1 head lice treatment and the #1 wart treatment, among others. All these products are just -- not just leading within a particular country but are leading across Europe with many of the market leaders in any individual countries.

When combined with the extensive Perrigo product portfolio, we'll be able to use a number of new line extensions all across Europe. On Slide 17, you could see additional aspects of the diversification this transaction enables. Omega brings us immediate meaningful exposure to most of the developed and emerging European economies.

This acquisition allows us to expand our health care products for over 500 million European OTC cash-pay consumers. Turning to Slide 18. Here you can see the impact the complementary product and market portfolio has on our ability to drive top line synergies.

Between our 2 companies, we will have a broad and compelling product portfolio that we will drive through the companies' global commercial channels. On the operational side, we are excited by the many opportunities to deliver our world-class supply chain and operational expertise to Omega's existing operations.

As you see, we are well on our way to identifying multiple opportunities to leverage our increased scale and drive more volume through our efficient manufacturing base. I'd now like to turn the call back over to Judy, who's going to discuss some of the specifics about the transaction and finance..

25% funded by Perrigo stock placed directly to Omega Founder and CEO, Marc Coucke; and 75% funded through cash and debt. Marc's continued investment demonstrates his high level of confidence in the future success of our combined businesses.

In addition to our combined strong margin and cash flow profile, we expect this transaction to generate attractive returns for our shareholders. And of course, I have to comment on our ever-important ROIC metric.

Recall, as I discussed at our Analyst Day on February 28, for certain transactions in new geographies, we have always anticipated it might take more than 3 years to achieve our stated goals. For this transaction, we expect to reach our weighted average cost of capital by year 2 and generate our target ROIC threshold by year 4 following close.

And importantly, we anticipate that this acquisition will be immediately accretive to adjusted EPS and double-digit accretive in fiscal 2016. From a financing perspective, we have a fully committed bridge facility in place.

We expect to put permanent financing in place from a combination of existing cash on hand and through the issuance of new debt and equity. We expect that the financing structure will provide us with long-term financial flexibility while, importantly, maintaining our investment-grade ratings.

And with $1.2 billion in pro forma operating cash flow, we expect we will have an attractive cash flow growth profile sufficient to delever quickly post-transaction. Turning to Slide 20. Here you can see the pro forma financials for the combined company with the scale of the diversification we are talking about with this transaction.

In particular, I'd like to highlight some more detail on the mix shift you can expect to see as a result of this acquisition. Not only do our LTM revenues on a combined pro forma basis increase by approximately $1.6 billion, but our diversification of revenue streams is significantly improved as well.

As a stand-alone company, Perrigo generated approximately 81% of sales from within the U.S. as of the end of fiscal 2014. Through this transaction and the access to European and other global markets, our revenue diversification increases significantly. On a combined pro forma basis, we're very nearly at a 50-50 split between the U.S.

and the rest of the world. Finally, Omega’s organic growth profile fits nicely into Perrigo's stated 3-year organic compound annual revenue growth rate objectives of 5% to 10% and operating income of 10% to 20%. On Slide 21, you can see that we have secured EUR 1.75 billion in fully-committed underwritten bridge financing from JPMorgan and Barclays.

The permanent financing is expected to include a combination of debt and equity, provide ongoing liquidity and long-term financial flexibility.

In addition to the use of existing cash that I mentioned previously, we also expect to increase the revolving credit facility to $1 billion from $600 million and to extend the maturity to 5 years, while maintaining our $300 million December '15 payment.

On Slide 22, at close, you can expect to see debt on the balance sheet of approximately $5.8 billion. This would include $5.6 billion of debt and approximately $200 million of other items that are treated like debt at the rating agencies. I'd highlight again the cash flow strength of the combined company will enable rapid deleveraging post-close.

We anticipate that our capital structure will be consistent with an investment-grade rating, and the expanded EBITDA profile will put us on a path to return back to our current leverage ratio in approximately 18 to 24 months. As mentioned, we expect to finance this acquisition in part through the issuance of equity.

In particular, we expect to issue up to $1.1 billion in new equity and/or equity-linked securities in relation to this acquisition. After the transaction, we would have approximately 147 million shares outstanding based on the market price of Perrigo stock as of the close of business yesterday, November 5, 2014.

We will look to complete the financing at the earliest possible time after finalizing necessary regulatory filings.

Pending the satisfaction of customary closing conditions, including the completion of the financing and the satisfaction of European regulatory reviews and approvals, we expect this transaction to close in the first quarter of calendar year 2015.

In summary, the acquisition of Omega not only provides us a phenomenal business platform across Europe, but it is also a terrific, financially-compelling transaction that advances all of our strategic and financial objectives.

That is, positive growth, strong margin and cash flow profile in a transaction that will be immediately accretive and achieve our ever-important ROIC objective. Let me wrap by saying our financial profile and our commitment to maintaining investment-grade status remain as strong as ever.

And now I'd like to turn it back to Joe for some closing thoughts..

Thank you, Judy. In summary, turning to Slide #23, we believe this transaction will enhance our position as an industry-leading global health care company, now with a meaningful leadership position and commercial operations within the U.S. and Europe.

We will now be able to participate in the attractive European OTC market, leveraging Omega’s commercial infrastructure and OTC product portfolio to generate consistent growth.

Where the acquisition of Elan provided our company with the operating structure for international expansion, this transaction now provides us with the commercial platform for further international growth.

We strongly believe Omega will immediately enhance our scale, broaden our footprint, establishing the foundation for continued strategic bolt-on acquisitions. In closing, we're extremely excited about this business combination for all the reasons I have outlined, and are looking forward to welcoming the Omega team into the Perrigo family.

And with that, I'd now like to open it, operator, for questions..

And operator, can you ask everyone to keep it to one question each, please?.

[Operator Instructions] Your first question comes from the line of Louise Chen from Guggenheim..

Congratulations on the deal. So my question is with respect to the tax benefits for this deal.

Are there any enhanced tax benefits given the fact that now a greater percentage of your revenues will come from outside the U.S.? And then also, just margin-wise, is this better than your corporate average? In line? How should we think about that?.

Well, I'll just give a quick overview and then, Judy, you may want to add something to the comment. But let's just start quickly. First and foremost, this is not so much about the tax or anything like that.

This is about building a commercial infrastructure to bring the company to a global platform and, as I said at the call, to create a top 5 global OTC company. That's really the primary purpose behind this. Judy, you may want to make some more specific comments about this for -- to Louise..

Certainly. As you are all well aware, being an Irish company, and the intention of our Elan acquisition last year was to really provide us a platform to build upon, and that is exactly what this is providing us.

We expect, pro forma looking forward, let's say, fiscal '16 you can start to think about the first full fiscal year, that our blended effective tax rate will be approximately 19%. So below 20% but slightly higher than our current run rate for this fiscal year as a stand-alone company.

And that does come with the jurisdictional mix of income and the blend of where their earnings before tax are currently derived.

On an ongoing basis, it's much too early to be able to talk about what that rate will look like beyond fiscal '16, but suffice it to say long-term mobility to be able to continue to reinvest globally around the world, utilizing the strong operating cash flow we'll have on a pro forma basis..

Your next question comes from the line of Elliot Wilbur from Needham & Company..

Congratulations to the team on the transaction. My question -- I guess my question is maybe more directed to -- towards Judy than yourself, Joe, but if you want to weigh on this as well. Obviously, your input is always appreciated and valued.

But just in looking at the reported numbers put out by Omega, I mean, it looks like they had reported in the 6-month period through June about EUR 250 million in operating profit. And obviously, I'm assuming EBITDA is somewhat higher than that and then -- excuse me, that was on an annualized basis.

So, I mean, I'm guessing that EBITDA is somewhere north of EUR 300 million. But that number doesn't really seem to reconcile with sort of the adjusted operating income metrics that you provided in the slide deck. So I'm just trying to get a little bit of clarity around reconciling that potential differential.

And then just to follow up to Judy, your comments on return on invested capital metrics. I mean, it seems like it's going to be quite some time before this transaction would be hitting double-digit rates of return.

And maybe if you could just sort of remind us of what your internal hurdle rates are, roughly, then sort of maybe just some commentary on the ability to get to kind of double-digit rates of return..

Thanks, Elliot. That was a 2-part question, but they were both good ones. So an A and a B. So I said -- I like to talk about both of them, so let's go. The ROIC metric, I'm going to work backwards.

The stated objective that we always have, have had forever, is on an acquisition, an investment, that we strive for a return on invested capital with a threshold of 200 basis points over our WACC.

As I stated a few moments ago, in this particular transaction, we expect our return on invested capital in the second year after acquisition to be above WACC and to be above that threshold of 200 bps above WACC by year 4. If you're focusing now on getting into double digit, it would be beyond year 5.

But we do feel that there is a glide path to that given not only the strength of the combined businesses, and the strength of this asset in particular, but what we can do together to provide longer-term synergies as we bring more of our products into their portfolio.

And I know for a fact that Joe is going to want to talk about some of the magic behind combining their portfolio, our portfolio and their commercial infrastructure.

Rolling forward to the published numbers, and I'm glad you point that out so that everyone on the call can go and look for those, the company has been publishing their 1231 and semiannual reports even since they have gone private because of their public debt. And with that in mind, you can see published information.

But it's important that you note that, that information is under IFRS. And under IFRS, there are accounting differences. So the numbers that you have seen reflected on Page 19 -- pardon me, 20 in the slide deck reflect numbers that are under U.S. GAAP. We've made adjustments for how they capitalize and do not capitalize other costs.

So we have made it to look like it will look combined in the future with us. So given that, we expect the ongoing forward-looking -- you will see published LTM operating income under U.S. GAAP come out, with pro forma financial statements in the next days as we prepare for our financing process, in the over USD 200 million.

And we've talked also about how they're expecting operating income to be growing at a rate of between 10% and 20% annually, similar to the Perrigo growth rates..

Yes, Elliot, the only other comment I'd add to what Judy said, because I absolutely agree with what she said, is that we really feel that the synergy of this is really an example of 1 plus 1 equaling 3 or more.

What we -- if you -- if I remind you that we have 3,000 Perrigo products today, if we could bring that into Omega’s commercial infrastructure, where Omega will select the best candidates to launch either a new brand and/or, more importantly, line extensions off of the existing Omega brands, we think that offers tremendous synergistic opportunity.

Obviously, additional to that, we think that the synergy is for -- to take the Omega product into some of the marketplaces where we do have significant infrastructure, such as the U.S, Mexico, Australia, just to name a few.

So it is that synergistic view on the revenue side that we're really excited about, what it means and how that plays into the financial numbers for the synergies that Judy was talking about..

Your next question comes from the line of Jami Rubin from Goldman Sachs..

Congratulations as well. Joe, just sort of a bigger-picture question, if you kind of step back. We've had a lot of, I don't know, I can't keep track, 4 out of 6 quarters of revenue misses. And there have been reasons for that, seasonality, et cetera.

But if you could just take a step back, how do you see the organic growth of the story playing out going forward? And how dependent do you think you are on continuing to do deals in order to generate organic growth? I mean, clearly this quarter had issues. But even if you strip out Tysabri, sales would have been down 8%.

So if you could kind of take a step back, high level, where you see organic growth to the business going. Clearly, that has been a reason for the premium valuation for the stock, and if you could just get a handle in terms of how you see that playing out. And then just as a corollary to that, Mucinex was clearly good news.

But does that represent upside to guidance this year? Or is that just filling a hole?.

Sure. Well, thank you, Jami, for the questions. I understand your commentary on previous quarters. I think we've had some great quarters and we've had some challenges, as we mentioned. This quarter, I'd say, though, it performed as expected. We knew there was going to be some -- a tough comparable versus the previous year.

We had a very strong cough/cold/flu early start in fiscal first quarter of 2014. Having said that, we expected that. We do think this quarter performed as we expected. There was a challenge, admittedly, in our VMS business. It did perform a little bit softer than we certainly would like. We were disappointed with that.

But beyond that, we do feel that it performed as expected.

To your comment and questions about where we look at the growth, we continue to believe that the organic growth rate of the Perrigo Company will be somewhere in that 5% to 10% top line growth rate, and then opportunity to essentially double the -- that growth rate, so 10% to 20%, on the operating income and EPS line for the core business that we have at Perrigo.

In addition to that, though, clearly we do -- we think, such as today's announcement about Omega, we can double or -- I'm sorry, we can add to it the inorganic side of the business to drive that top line. So we still believe the business will grow 5% to 10% top line, 10% to 20% bottom line for us as a company.

The major drivers for that are clearly what we've said in the past. It's this concept of more and more products going from prescription to OTC. In the United States, certainly, and many of the countries, it's continued to see the movement of consumers from national brand to store brand all as important drivers to what we look at, at our base business.

Now we believe we can certainly supplement what we have at Perrigo Company today by combining the assets of the Omega organization to really supplement our growth rates beyond what we're talking about here in terms of 5% to 10% organic growth rate..

Jami, I think you had specifically asked about the Guaifenesin coming into the forecast and is it closing a hole. I guess I wouldn't put it in those terms because we are launching the product now in the season. So we are definitely adding the product back into the number.

As we specifically told you in August, it was not included in the annual guidance provided in August, but we also just mentioned that there are some other moving pieces that go in the other direction. And in the vein of total transparency, we've given you color on what those are as well.

And hence, we're maintaining the guidance range, which is fairly wide and encompasses both the pluses and minuses at this stage. And being that it's still early in the year, just giving you the ins and the outs and maintaining the total year for the moment..

Your next question comes from the line of Randall Stanicky from RBC Capital..

Joe, I know this is a revenue synergy story and then what it does for you strategically. But can you talk about the cost savings opportunity, whether it's R&D, SG&A? And then Omega had a lot of externally-sourced products. There's -- I have to think there's an opportunity for you guys, at least over time, to bring a lot of that sourcing internal.

So I guess how big of an opportunity is that? Could you quantify it? And over what time period?.

we do not see this as an opportunity to reduce research and development. We do think research and development has been a big driver of the success at the Perrigo Company and the Omega company.

So we do think we -- there's significant opportunity for additional research and development to extend and build out our product portfolio and, as I said before, the potential to launch some of the 3,000 products in the Perrigo portfolio and bring them into the Omega distribution network as line extension opportunities to build the Omega brands..

Are there cost savings that we could build in kind of out-of-the-box as you look at the cost structure of Omega and Perrigo? And obviously, I know you're not overlapping directly, but how do we think about some of that synergy opportunity in terms of costs?.

Clearly, there are cost saving synergies, no doubt about it. On the order of magnitude that will start in the tens of millions, though. And obviously, we think there's opportunities to continue to increase the slope of that in terms of the future. But certainly in the tens of millions [indiscernible] there.

That is an example of the type of cost savings we expect to realize..

Your next question comes from the line of Gregg Gilbert from Deutsche Bank..

Simple business model question, Joe. The company has been primarily a store brand OTC company. And today, you're buying a branded OTC company. I realize there isn't a big store-brand company in Europe for you to buy.

But as you purchase Omega, are you doing so more for the platform in Europe to take the historical strength of Perrigo, the store brand, into Europe? Or because you think it's important to add a branded OTC sort of demand generation capability to Perrigo in Europe that might be transported back to the U.S? Just a simple business model sort of evolution question.

It feels like a generic company buying a branded company in some ways. So -- if I could use that analogy. So maybe just stepping back, how important do you think it is to become more branded? And how transportable is the U.S.

store-brand model to Europe over time?.

Yes. So one of the things that we have said on numerous calls, Gregg, to you is -- because it's a great question, is we thought about what do -- where can we go next with the Perrigo model. There is no ability to take and bring out a mass customization approach to a France or Germany.

In the regulations, you -- the -- in France, for example, a pharmacist needs to own the facility for a pharmacy, and they can only own one pharmacy. Germany has a regulation that you can't own more than 4 pharmacies per pharmacist. So there clearly in Europe are different constraints for us to do our existing model.

So we did feel that we had opportunity to look at Europe and say, where can we go? We felt that the branded opportunity that Omega offered us was clearly one of the best opportunities to have this global or certainly pan-European footprint and indeed to become a top 5 global OTC player, to be clear.

Do I believe there are going to be branded opportunities for us not just in Europe? The answer is yes. I do believe that we will have some opportunities. But most importantly, the near term for us is really focused on saying we have 3,000 products at Perrigo.

Which of these products can I bring to Europe and offer to the Omega team, have a product line extension of some of their great #1 leading brands and launch a product line extension into the European platform? I'm sure that, just from our discussions with Marc and his team, we think there's already a number of those that will be very exciting opportunities to align some brands -- some additional brands, do additional line extensions into Europe.

So that's clearly an opportunity. Do I think some of the Omega brands can come to the U.S. in some way or into our Australia operation, into our Mexico operation? The answer is yes, there is clearly a synergy for that as well. So I think it's a little bit of both of what you said.

There is a true opportunity to bring our Perrigo product family into Europe and bring some of those European Omega brands into some of the markets in which Perrigo already has operations like the U.S, Mexico, Australia, et cetera..

Your next question comes from the line of Sumant Kulkarni from Bank of America Merrill Lynch..

How quickly can you achieve revenue synergies in either direction? And is the 5% to 10% sales growth rate on the Omega side sustainable without revenue synergies kicking in?.

I'll answer the second part of the question. We believe the answer is yes. We think that Omega has a very sustainable ability to grow in that 5% to 10% range.

I mean, it was remarkable as we went through their product portfolio, their plans and the similarities that they have and how they've been growing their business and how that aligns with what we do at Perrigo.

The revenue synergies that they will -- we will start the activities as soon as we're allowed in terms of the -- going through the regulatory process, but we are very excited about some of the products that we currently have. You may recall that Perrigo has been working for the past 4 or 5 years to get some products approved in the European market.

I think our current rate is we have up to about -- somewhere around 15 products that are currently approved by various regulatory agencies in Europe. So some of those products can move relatively quickly within -- starting the first full year, year 2, year 3, year 4 as we think about it.

And I think that was part of what Judy said in terms of our ability to hit our return on invested capital hurdle by year 4, as we are anticipating the revenue synergies that we think we can bring into the marketplace..

And maybe, Sumant, just one quick thing as I know many of you are going to start pulling the publicly available data on Omega. Just to make it clear, as you know, whenever we talk about the future and we talk about our 5% to 10% growth rate, we always put them in the context of organic only.

You'll see that the company has been phenomenally successful both on an organic basis but has also continued to acquire products and brands along the way. So all of our numbers are reflecting the organic only.

And certainly, the business model and our management -- combined management teams are going to be keen to continue to tuck in products, tuck in brands, et cetera. But we are talking here today about an organic-only growth rate of that stand-alone business, and we expect them to continue to invest in the future certainly..

Your next question comes from the line of David Risinger for Morgan Stanley..

Congrats, Joe and Judy. I had really one key question. Several questions have already been asked and answered.

My question is, how long will it take to roll Perrigo-manufactured products into Europe? So how should we think about that time line? Is it very easy? I mean, obviously, for you to put new labels on bottles in your manufacturing plants is easy.

But how easy is it to get regulatory approvals in Europe? And how easy it is it to create new brands -- new branded over-the-counter products in Europe?.

David, I'll split that into 2 different groups. There are some products that we currently already have approved by -- Perrigo had approved within our European platform, and we had been working on that for the past 4 or 5 years.

There's about -- more than a dozen products that are approved, and we already have the opportunity to look at that -- those products for future branding opportunities, future life cycle extensions of the existing brands of the Omega team. So that group can be done relatively quickly, albeit that's not the complete list by far.

The further list is the 3,000 products that are part of the Perrigo family. Think of our U.S. portfolio of OTC products where we can take one of our cough/cold products and bring it over and get it approved in the European setting. We already know how to make the product. We already know how to work on the formulation.

We already know how to develop the methods. All that is part of our current product knowledge, bringing that, getting it approved through the regulatory expertise of the Omega team, we think it'll take some time. But importantly, we'll then be able to put it through the commercial infrastructure that is available to us with the Omega team.

So those will take several years, 3 -- probably 3 to 4 years for those types of products. But I think it's important to say there are 2 ways. So the first 15 products, or 12 to 15 products, we already have under way.

And then there's the additional products that Marc and the team will look through our portfolio, pick the best ones for life cycle and line extensions to bring out some additional brands into Marc's platform. So it will take more the 3- or 4-year time frame..

Your next question comes from the line of Marc Goodman from UBS..

When you say that it's going to be -- the deal will be accretive -- double-digit accretion to fiscal 2016, I just want to make sure you're referring to -- is this your own internal projections? Or are you referring to consensus? And obviously, this is absorbing some extra shares and, obviously, a higher tax rate because tax is going from 16%, you're saying, to 19% for the -- so obviously, there's going to have to be some cost synergies.

Obviously, it's cheap financing. I just want to make sure I understand that. And then maybe, Joe, could you just also just talk a little bit about Animal Health within Consumer? Just we haven't talked about that yet. Just give us a flavor for what happened in the quarter..

Sure.

So Judy, why don't you the first part of it, the accretive, double digits, 2016 and the magnitude of it and comment on cost synergies and I'll deal with the Animal Health?.

Sure. You guys know how much I love to give forward-looking guidance on EPS. But let me give you a framework to think about, because there are a lot of moving parts, but as you start to think about how to model out how we get to a "double-digit accretion" in FY '16. I made the comment earlier that you'll shortly be seeing adjusted U.S.

GAAP LTM September 30 operating income numbers published with pro forma shortly. And we talk there about a number of operating income well north of $200 million. So if you were to ballpark mid-200s, I mean, they talked about a growth rate, like we said, between 10% and 20% a year.

So if you start to project forward what that would look like by the end of June 2016 and you start to think about the acquisition of new debt, so approximately $1.6 billion of new debt that will go onto the balance sheet at, if you use our current blended rate of our external debt, of 4.25%, or our public debt, and you take on acquired debt from the target, you have an approximate interest expense incremental of $100 million.

I made the comment about the effective tax rate. So just, say, to be simple, use a 20% effective tax rate. And we say that we're going to take on incremental shares.

So just using, in the material we provided, 147 million shares outstanding when the deal is all said and done, that's approximately 12 million, 13 million extra shares that are going to be taken on.

I've just kind of given you the framework of how to think about their incremental net income, which takes into the effect the debt costs, the incremental shares we add. And if you do that math, you can see that double digit, by our standards, is significant. It's material. It's substantial. I don't know what kind of adjective you want to use.

I'm always reticent about providing a precise number for the obvious reasons that we are not yet in the financing market. We've just announced the deal.

And there is going to need to be a bounding box between the right combination of sources for this transaction, so that we are getting the optimal weighted average cost of capital on a go-forward basis while maintaining our investment-grade rating. So hopefully, you'll give us the flexibility to make the right judgments as we proceed in that process..

So all that is accretion relative to the consensus number?.

That is correct..

So the second part, Marc, of your question was the Animal Health business. I don't know the exact -- I don't have the exact number right and handy in front of me on the Animal Health. But clearly, the story of Animal Health for the full year is going to be a story about new products.

It is the launch of our new product line extension for full year of 2015 that we really think is what's exciting. We've talked to you about some of the acquisitions we've done in the past in this business.

It is the ability to launch those new products during this upcoming fiscal year that I think is really going to drive the growth in the Animal Health business that we've talked about in the past. That's where it's really -- this particular quarter wasn't a significant difference from last year.

It is really the growth in the next quarters that's -- and the -- for the full fiscal year 2015 that really is exciting and that the most -- the majority of that growth is going to be driven by what we have as an opportunity for new products and line extensions of the products. That's really what the growth driver is going to be..

Your next question comes from the line of Chris Schott from JPMorgan..

I just had 2 quick ones here. First, when I think about the Omega business model, does this ultimately have similar characteristics to your U.S.

business, where incremental sales are associated with fairly limited incremental expenses as you leverage existing infrastructure? Or since these are more branded assets, do you need to think about a bit more investment as you launch these new products? I'm just trying to understand kind of the margin expansion potential as sales continue to grow.

And second question was just coming back to that -- the business development strategy going forward. Should I read your comments today as BD post-Omega is very much x U.S.

focused as you look to build out on this infrastructure you're acquiring here? And is that BD -- is it mostly bolt-on products? Is it geographies? Just give us a bit more flavor of what you're hoping to kind of build upon over time with this asset..

Sure. So the first comment, I was -- it was so remarkable, the first time we had a chance to talk with Marc and his team, how they've grown their business, and they've done a number of acquisitions, as Judy had mentioned before.

One of the things that has been so remarkable is they've found a way to get existing growth in their business by going after line extensions, bringing out new products, especially line extensions, into their existing commercial network. So that's one of the things.

So they've -- when they've shown their growth rate on the top line, they often been able to take that top line growth rate and get a synergistic growth rate on their bottom line as they've grown the business. So it's been -- it's that ability to have a leverage in the P&L that is what we have seen for -- historically for Omega.

On the question of where do we go next, first and foremost we have to focus on getting this transaction closed. That is an important part of what we're trying to do right now and will be doing as we get off this call now. But the clear intent that I've mentioned in the call is absolutely true.

We do think there's continued opportunity for strategic bolt-on acquisitions. That's something that Marc and his team have been very active and, of course, the activity we've had here in the United States for the Perrigo business. So bolt-on acquisitions and acquisitions are going to be part of our infrastructure.

I have to add, though, that we have made a commitment, and as we've said in the past, to look at our leverage ratios and keep the investment grade. That is an important part of what Judy mentioned on the call and certainly what I had mentioned in the past.

So yes, there are opportunities, but I don't want to lose sight of that investment-grade comment.

Judy, anything you want add?.

Thank you for the investment-grade comment, Joe. I would like to just make -- just provide a teeny bit of color to the comments Joe made around these line extensions. And for those of you who aren't as familiar with our business model, it's a hybrid.

So when you think about building brands, it may pop in your mind hundreds of millions of dollars that need to be spent to create consumer awareness. The genius of what they have accomplished is they have taken brands that have consumer top-of-mind awareness market-by-market and have done these line extensions.

For example, taking a brand that's well known as sinus wash, sinus cleanse and have then tacked on allergy products.

So take a name that's known, don't have to spend a ton to develop the brand, and then take a product like, for example, the Perrigo cetirizine hydrochloride 10 milligram, which they now package as an allergy product and sell under that well-known brand in Europe across markets. So they take a basket of available products.

They allow their country to develop them as they see fit. So while there is more brand investment than we have in our store brand model, it is certainly much different than the kind of normal investment you would see if you were trying to launch brands across 35 markets customized to individual consumers..

Your next question comes from the line of Linda Bolton-Weiser from B. Riley..

I think you've touched on this issue already. But just the idea that you're both doing private label store brand and branded products now, is there any at all risk of alienating relationships with the retailers? And also, can you talk if there's any retailers that overlap between the 2 companies? I would think probably not.

But are there any kind of larger ones in Europe? I know you've said it's very fragmented. And then just a quick question on Specialty Sciences in the quarter.

Was there any upfront payment included that was related to the sale of that one asset?.

Okay, let me deal with the first part of the question. On the branded store, branded product opportunity, that predominantly -- as we said, there really isn't a store-brand opportunity in Europe with the exception of the U.K. market. So in U.K. -- is there potentially some overlap in the U.K.? The answer is absolutely yes.

But the majority of the countries in Europe, there really is not a store-brand opportunity.

However, there clearly was an opportunity to leverage our existing portfolio of 3,000 Perrigo products that we have today, to bring them into the European platform, to find those products that Marc and his team can then take and bring out some additional line extensions, very similar to the description that Judy just provided.

So that part is very clear.

I'm sorry, the second part of the question?.

The answer to your question is no, the revenue line that you see is 100% Tysabri. There's no impact by the sale of assets that came in the current quarter. It's de minimis..

So that's, I think, both part of the question..

Your next question comes from the line of Tim Chiang from CRT Capital..

Well, Joe, looking at this deal strategically, long term, do you expect to bring a lot of the Omega products in-house? I mean, how long do you think that would take? It seems like, what is it like, 2,000 products at Omega.

I mean -- or do you plan on actually keeping the products on the other side of the Atlantic and just continuing to have those products outsourced?.

Yes. So indeed, you're absolutely right with your numbers. There are 2,000 products. I would say, though, to be clear, I want to make sure it's very clear that 20 of the brands account for the majority of the sales.

So 2,000 products is correct, but the -- but there really is clearly a focus on the top brands and -- of which there are 20 brands that Marc and his team focus on.

On the second part of the question now in terms of bringing that in-house, the way I look at this is that one of the strengths that the Perrigo organization brings to this transaction is a very efficient supply chain for procurement and manufacturing efficiency.

We certainly will not attempt to bring every product inside, but there will be opportunities for us to lower cost of goods, lower the Omega cost of goods by putting those products into the Perrigo very efficient supply chain, knowing that we are the world's -- one of the world's largest OTC manufacturers.

When it comes to actually procurement of raw materials, those raw materials that are appropriate for the U.S. market are also very appropriate for the European market. So there clearly will be procurement synergies that we will experience as a result of bringing some of those product inside.

But to be clear, I do not expect us to try to bring every product inside. It's -- obviously it's one of those 80-20 rules. We'll focus on the significant opportunities first and then build from there..

Okay, good. Judy, could I just ask one follow-up on the tax side? I think in the Omega filings, they basically say their tax rate is around 18%. Is that about right? And then I think you gave guidance that the pro forma it'd be around 19%.

So I was just sort of trying to understand why would your rate be slightly higher or combine them to be?.

So important to note, you're looking at backward-looking effective tax rate, and we have been working, in the process of our diligence and discussions with management, on looking at forward looking. And the forward-looking blend of income -- earnings before tax by jurisdiction would imply a higher rate for them on a stand-alone basis.

There are some tax planning attributes that will be expiring out. And therefore, for us to be appropriate on a go-forward basis, their blended rate standalone would be more in the mid-20s and, therefore, averaged in with us, is just about 20%. So around 19%.

So again, it's making sure that you take into consideration forward looking versus backward looking..

I absolutely agree with what Judy said. I'd also say that Judy her team have been -- have done an excellent job with the tax rate of the Perrigo Company. And I think as we look at the combined tax rate, they'll continue to do a wonderful job with that in terms of doing the appropriate thing..

Your next question comes from the line of Douglas Tsao from Barclays..

So I think the first question that a lot of people have on their minds is, is the Omega Pharma cycling team going to be rebranded as the Perrigo cycling team? Then the....

Well, no, go ahead. I'm sorry..

Then on a more serious note, how are you going to think about sort of the acquisition strategy that Omega has done? Obviously, they have been pretty active in terms of acquiring brands over the last couple of years sort of to put them into their portfolio.

Do you expect to continue at that same pace? Or do you expect to sort of pause as you sort of integrate the business? Just because it seems like, from their perspective, a lot of assets have certainly become available over the last couple of years for them to sort of capitalize on..

Yes, I specifically would simply say that Marc and his team have done an outstanding job with M&A in terms of acquiring additional brands and bringing them to the marketplace, successfully commercializing them.

Our expectation is that -- first and foremost, our priority is to complete this transaction, to get the integration done and accomplished and to move forward with that. Having said that, after we get that accomplished, we will look at -- we'd continue to look at bolt-on acquisitions. I want to remind you of my comment on the investment-grade rating.

That is important to us. But nonetheless, we do think there are some opportunities for that now and going into the future.

We really do think, though, that with what we're expecting in terms of the cash flow generation of the combined companies of the Perrigo and the Omega, there will be significant opportunities for strategic bolt-on acquisitions for the future without getting into the specific time and -- time point of that.

And I don't think at this point we'll be rebranding that Omega cycling team. So Marc has done a great job with it. We'll leave it as is..

Well, and I would absolutely say that should not be viewed as a source for cost synergy..

Sounds like a cyclist to me..

Your final question comes from the line of Annabel Samimy from Stifel..

You may have answered some of these in some form already.

But when you think about moving into a brand business as opposed to the private label business that you do in the U.S., how should -- I mean, you talked about margins, but how should we think about that margin opportunity for a brand product as opposed to the private label product? And just really quickly on taxes.

If I'm calculating this correctly, it was a 15% tax rate this quarter. So I guess I'm still surprised that you're guiding to 20% going forward. And....

No, no, no. Oh, I'm sorry, I'm sorry, but I have to jump in. I can't take a breath on that one. 15% for this quarter, correct. We're guiding 16% for fiscal 2015. That's Perrigo standalone, unchanged guidance for the year. All of my early remarks were about stand-alone Perrigo. Close that door. Next, pro forma combined company with Omega, 19%.

Please do not confuse the 2..

Okay. On the first part of the question, it deals with the question of brand versus private label. As I said on the call, the opportunity in Europe that we see is -- there are brands, there are no specific opportunities to do private label.

Having said that, though, if you think about what I said about the business from Omega, it's a business built by a pharmacist for pharmacists.

Marc and his team have done a great job making sure that the pharmacists receive appropriate margins for the products and to help build what Marc has done in terms of his capabilities for making sure the pharmacists are -- the European pharmacists are very rewarded for the use of their product.

So I would say, though -- one other point that I want to make sure that I'm clear on is that when you think about the respective operating income margins for the Consumer Healthcare business of Perrigo, predominantly U.S. based, versus the Omega, it's very similar in terms of the operating income.

Clearly, the Omega team has a higher gross margin, but then they have some additional operating expenses. When you get down to the actual operating margin, they are very similar across the businesses. So in the end, it's going to be very similar when you combine these 2 businesses in terms of what it will look like.

So with that, let me conclude the call today. I want to say thank you, everyone, for your interest in this call.

I want to once again reinforce the excitement that we feel that we think it's a great day for Perrigo and Omega as we bring together 2 great organizations and indeed have a chance to really look at the synergistic opportunity between bringing them both together.

We're truly, as I said earlier in the call, that 1 plus 1 equals 3 as we look at synergies for bringing together 2 great companies. Thank you very much for your attention today. Have a great day, everyone..

This does conclude today's conference call. You may now disconnect..