Arthur J. Shannon - Vice President, Investor Relations and Global Communications, Perrigo Co. Plc Joseph C. Papa - Chairman, President & Chief Executive Officer Judy L. Brown - Chief Financial Officer & Executive Vice President.

Louise Chen - Guggenheim Securities LLC Randall S. Stanicky - RBC Capital Markets LLC Sumant S. Kulkarni - Bank of America Merrill Lynch David W. Maris - BMO Capital Markets (United States) Marc Goodman - UBS Securities LLC Gregg Gilbert - Deutsche Bank Securities, Inc. Linda Bolton Weiser - B. Riley & Co.

LLC Elliot Wilbur - Raymond James & Associates, Inc. Jason M. Gerberry - Leerink Partners LLC Annabel E. Samimy - Stifel, Nicolaus & Co., Inc. Emil Chen - Morgan Stanley & Co. LLC Jami Rubin - Goldman Sachs & Co..

Good morning. My name is Kayla, and I will be your conference operator today. At this time I would like to welcome everyone to the Perrigo Company Plc Second Quarter Calendar Year 2015 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

I will now hand today's call over to Mr. Art Shannon. Please go ahead, sir..

Thank you very much, Kayla. Welcome to Perrigo's Second Calendar Quarter Earnings Call. A copy of the earnings release we issued this morning is available on our website at perrigo.com. Also on our website is the slide presentation for this call. As you know Perrigo believes in being transparent and open to our investors.

Following today's conference call we will be actively reaching out to investors over the next few weeks. 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. Following management's review of the presentation we will open up the call for questions. I'd like to now turn the call over to Perrigo's Chairman and CEO, Joe Papa..

Thank you, Art, and welcome everyone to Perrigo's Second Quarter 2015 Earnings Conference Call. Also joining me today is Judy Brown, Perrigo's Executive Vice President and Chief Financial Officer. For our agenda today first I will make a few comments on the quarter. Next Judy will go through the details of the second quarter results.

Then I will give you an overview of our recent success in both store brand and prescription product approvals. And finally, reiterate our position on Mylan's unsolicited offer to acquire Perrigo. Finally, you will have an opportunity for question and answers.

Before we get into the agenda however, I'd like to start by thanking Perrigo employees for their diligent focus, which has led to adjusted net income growth of 37%.

Even with all the noise you've been following over the past few months, our nearly 13,000 Perrigo employees have announced three M&A transactions, delivered on our Omega integration plans, achieved great operational efficiencies and productivity improvement, executed on our new product launches, and delivered on our Base Plus Plus Plus strategy.

It's great work by the team. Now let's discuss the quarter. On slide 4 you can see, despite some challenges, this is a very strong quarter. Our quarterly performance is highlighted by second quarter record net sales of more than $1.5 billion. We also achieved record adjusted gross margin, record adjusted net income, and record operating cash flow.

Our Consumer Healthcare segment grew adjusted operating income an impressive 18% compared to last year. In fact our consumer-facing revenues now represent 75% of the total Perrigo company revenues. Moving on to slide 5 you can see consolidated Perrigo grew the top line by 34%.

This is driven primarily by the addition of the Branded Consumer Healthcare, or BCH, segment sales and the record second quarter sales in the Rx business. New products contributed $149 million, comprising $116 million in legacy Perrigo sales and $33 million in our Omega business. You also see that we continued to invest in our future this quarter.

We invested over $44 million in R&D to continue to support our strongest new product pipeline ever.

I'd like to highlight that even with strong R&D investments in our legacy Perrigo business, supply chain and manufacturing efficiencies and favorable product mix allowed us to achieve record second quarter organic adjusted operating income, which improved 11% over last year.

Judy will give you more details, but let me highlight a few items from the business segments. Our consumer-facing business segments, both Consumer Healthcare and our Branded Consumer Healthcare segments, had combined net sales of $1.15 billion this quarter with adjusted gross margins of nearly 42%.

Their combined adjusted operating margins were nearly 21%. New products for the consumer-facing businesses were $110 million in the quarter. In the quarter, we were able to realize positive gross profit margin improvement from new products net of discontinued products.

The globalization and the scale of our consumer-facing business platform provides exciting new opportunities for Perrigo, as evidenced by the three recently-announced acquisitions in our consumer business. First, we announce the acquisition of the Mexico Patheon softgel business, which closed in May.

Perrigo has long desired to be a prime manufacturer of softgel products, and this acquisition gives us our entry point. Second, we announced the acquisition of brand assets from GSK. This portfolio generated over $110 million in annual sales last year. And with the return in the nicotine lozenges, we expect to grow those sales.

Also we announced the acquisition of Germany's leading dietary supplement brand, Yokebe, which is marketed as a meal replacement product and is currently the second largest dietary brand by market share in Germany. We expect to close both the GSK and the Yokebe transactions in the third quarter.

With the record adjusted operating income in our Consumer Healthcare business, the strong performance of our recently acquired pan-European Omega business, and these recently announced transactions which bolt on very nicely to our existing infrastructure, I'm excited by the future prospects and our megatrends in this truly global consumer business platform.

As you can see on slide 6, new products will drive our future growth. Excluding the impact of Omega, we expect $1 billion in new product launches over the next 3 years, representing more than $3.6 billion in national brand sales, highlighted by the launches of Nasacort, Flonase, the Mucinex family, plus many more.

Also just in the last week, we received three ANDA's approvals. First, we just received FDA final approval for testosterone topical gel 1.62%. Second, we received FDA final approval for ibuprofen sodium tablet ANDA, the national brand equivalent to Advil fast relief.

And finally, we received FDA approval for omeprazole magnesium tablet, the equivalent to Prilosec OTC. This is the first and only truly equivalent generic product to the national brand. Thank you to our R&D team for the excellent work. Our Rx segment once again achieved record results, growing sales 10% with a record adjusted gross margin of 65%.

New product sales in the quarter were driven by the generic versions of clobetasol spray and our AB rated AndroGel 1%, both of which are powerful launches in our Rx business.

Adjusted operating margins were strong in this segment, even as we invested $20 million in research and development and continued making investments in our branded Rx sales team. Congratulations to the Rx team for another strong quarter. In Specialty Sciences, we have been very pleased with the market performance of Tysabri.

It is a great asset that is generating terrific cash flow, particularly with the current 18% royalty that it now provides. As you can see on slide 7, over the last 52 weeks, U.S. store brands continue to gain share in smoking cessation.

When you take out the impact of new national brand product launches and the effect of national brands' return to the market, store brand market share continues to grow.

Given the megatrends I've talked about for many years, including an aging population, increased use of medication as individuals get older, and rising healthcare costs, Perrigo is well-positioned to meet the future needs for the global healthcare community. Now, let me turn the call over to Judy..

one, relatively lower sales within the animal health category, led by the absence of contract manufacturing sales to a national brand as previously discussed last quarter; two, a relative decrease in OTC promotions this year by certain retailers of a major product in the GI category; three, continued price pressures from international competitors within the VMS category; and four, $12 million in foreign currency headwinds.

In fact the impact of the animal health, VMS, and FX items I just mentioned were a 450 basis point year-over-year top line headwind to this segment's growth. Adjusted gross margin expanded to its highest level in the 6 – last 6 years due to greater production efficiencies, greater seasonal volumes, and favorable commodity pricing.

At the same time we continued our spending discipline in SG&A. And as a result adjusted operating margin increased 390 basis point year-over-year, which led to the impressive 18% growth in adjusted operating income compared to last year that Joe just mentioned.

On slide 9 you can see that net sales within Branded Consumer Healthcare were $401 million for the quarter, an all-time record quarter for Omega Pharma.

This impressive result was driven by an 11% increase in sales of the top 20 brands on a constant currency basis versus last year and the launch of a number of exciting new products, including XLS Max Strength, a line extension to the brand SLX Medical for weight loss; new versions and flavors of Bronchostop, an herbal cough medicine; and strong distribution sales in the quarter.

Turning to slide 10 you can see that our Rx team continued to deliver, posting 10% net sales growth to a record $278 million in the quarter. New product launches and contribution from our women's health branded category led to record adjusted gross profit for the segment.

We continue to invest in high margin potential R&D projects, highlighted by an approximate 38% increase in year-over-year R&D investments to a level of 7.2% of Rx net sales.

Turning to slide 11 Specialty Sciences net sales were $84 million, comprised of Tysabri royalties at 18% for the entire quarter, versus only 2 months at that 18% level a year ago.

Year-over-year growth was limited by two dynamics, one, foreign-exchange negatively impacted net sales by approximately $7 million, and two, second calendar quarter 2014 net sales included approximately $10 million in net sales from Biogen's agreement with the Italian Medicines Agency.

Before I turn to the forecast a quick comment on the balance sheet. As of June 27, 2015, total cash on the face of the balance sheet was $786 million and current and long-term debt was $5.3 billion. Net cash flow from operations on a trailing 12-month basis was a record $1.2 billion. Moving into the updated calendar 2015 guidance on slide 12.

First, I'd like to start with noting that we are confirming our calendar year consolidated net sales and adjusted earnings per share guidance we provided you on April 21. To help you further refine your models I'd like to provide you with some added color on the segments for calendar 2015.

Due to previously-discussed seasonality in Consumer Healthcare, specifically in the animal health and cough/cold categories, we expect the adjusted operating margin realized in this segment's past quarter to be the highest for the year.

As is our historical trend in this segment, volumes in the second half of the calendar year are anticipated to be relatively lower over the next two quarters, thus producing relatively lower adjusted operating margin in the second half of the calendar year in line with past seasonal performance.

Additionally we anticipate R&D spend to increase approximately 30% in the second half of the calendar year related to project timing. We continue to expect Branded Consumer Healthcare to contribute approximately 20% of total Perrigo consolidated net sales for the full year with strong net sales over the remainder of calendar 2015.

Note that though our forecast in this new business anticipates that the June quarter just ended will be the highest revenue quarter in the calendar year, due to new product launches such as XLS Max Strength and strong distribution sales we just realized in that particular period.

Note also that the current BCH forecast now does include $25 million in net sales associated with recently announced acquisitions, which we expect will close in the September quarter. Given the continued positive momentum in the Rx base business, coupled with strong recent product launches, we remain excited about this segment's growth prospects.

Please note that for the remainder of the calendar year adjusted gross margins in Rx are also expected to be slightly softer than this past quarter, due to product mix and limited new product launches for the remainder of the calendar year. Turning to slide 13.

While the adjusted annual effective tax rate is still expected to be approximately 17% for the full calendar year 2015, we anticipate both the third and fourth calendar quarter rates to increase to approximately 18.5% due to the inclusion of estimated earnings before tax from Omega Pharma.

This jump in the rate is a function of the accounting rules surrounding annualizing effective tax rates. Please realize that for accounting purposes the 6-month stub period, or second half of calendar 2015, is the first time Omega results will be included for a full U.S. GAAP reporting cycle.

The first half of calendar 2015 was still technically part of our fiscal 2015 reporting year, which included Omega for only one quarter. This estimated 18.5% adjusted tax rate is in line with the expectations from our November 6 Omega acquisition announcement call.

So summing all this information up at the consolidated level, we expect third calendar quarter 2015 adjusted net income to grow between 30% and 35% over the comparable 2014 period. For your calculations of earnings per share please continue to model diluted shares outstanding of approximately 147 million shares in the quarter.

As I stated a few moments ago these are certainly very exciting times at Perrigo, both in terms of reaching new customers around the globe and executing our BP3 [Base Plus Plus Plus] strategy.

Yet again we've delivered remarkable year-over-year adjusted net income performance, 37% this quarter, coming off 41% growth in the March quarter, with expected growth next quarter again north of 30%.

At the same time record cash flows will continue to provide meaningful returns to shareholders and as well as they create the dry powder to enable meaningful M&A and the multiplier effect these transactions can achieve. Now I'd like to turn the call back to Joe..

Thank you, Judy. Before we open it up to Q&A, I want to just provide a few thoughts. First, I want to repeat the exciting news that we received three ANDA approvals within the last week. That is great news. And to my recollection is a record for Perrigo.

And importantly it gives us increased confidence in our ability to execute on the Base Plus Plus (sic) [Base Plus Plus Plus] strategy. Second, our manufacturing and supply chain teams have done a great job finding operational efficiencies with our continuous improvement program. And you're really seeing it in the bottom line results of our company.

Third, I want to take a moment to speak about the unsolicited offer by Mylan to offer 2.3 shares plus $75 in cash per share of Perrigo, which I know is on a lot of the shareholders' minds. As we've been saying since April we strongly believe that Mylan's offer substantially undervalues Perrigo; is not in the best interest of Perrigo shareholders.

And both remain true today. We do not believe this is in the best interest of Perrigo shareholders. Our board's rejection of Mylan's offer was unanimous. And made specifically that it had nothing to do with Teva. It has always been a strength of our standalone Perrigo business.

You have seen this reflected time and time again as we return value to our shareholders by executing on our Base Plus Plus Plus strategy. Our acquisition strategy continues to provide a multiplier effect to our already-strong organic growth, as we've shown with our acquisitions of leading European brands over the past few months.

The market movements following Teva's announcement last week only reinforce our conviction about the Mylan offer. Also Perrigo has a strong history of responsible corporate governance policies. We believe deeply in our responsibility to shareholders.

For example in 2014 Perrigo received the best compliance and ethics program for a large-cap company and our General Counsel Todd Kingma won the Governance Professional of the Year. Great achievement for Todd and the entire Perrigo company. But there is a lot of noise in the market.

And I want to try to distill it down into really three comments on the unsolicited Mylan offer to acquire Perrigo. Specifically combining with Mylan, number one, would dilute the strength of our durable consumer business. It would risk the value that we continued to create for shareholders.

Number two, we believe it would result in a significant P/E multiple contraction as we take our Perrigo durable business and combine it with the Mylan business. Number three, I make no statement about the timing of EpiPen generic. However clearly it would expose Perrigo if we merged the two companies together to a product concentration risk of EpiPen.

I'll let you all decide when and if a generic will show up of EpiPen. I make no predictions on how Mylan shareholders will vote on August 28, but I also want to remind everyone including the Mylan shareholders that if they proceed with a tender offer for Perrigo, this will not be the easy path to completion that some are painting it to be.

The bar for success in the tender offer process is a very high 80% of all outstanding Perrigo shares. We've been on the road talking to our shareholders, and we are pleased to hear your confidence in Perrigo's management team and our standalone strategy. Each of you will need to make your own decision.

But based on the current offer, if we ever get to a tender share process, I intend to vote no to the Mylan unsolicited offer to acquire Perrigo. In closing we continue to believe that Mylan's offer substantially undervalues our business.

And we are confident that by executing on our Base Plus Plus Plus strategy we can deliver far superior growth to what is represented by the Mylan offer. I will now open up the call for any questions.

Operator any questions?.

Please limit your time to one question. Please hold while we compile the Q&A roster. And our first question comes from Louise Chen..

Hi. Thanks for taking my question. So one question that we often get is how much growth is left for Perrigo over the longer term, especially in light of some of the news events that have happened recently? Are you just at the beginning, middle, or end of the company's growth? And how committed are you as a management team to see this through? Thanks..

So, Louise, thanks for your question. I mean I think the commentary that I will offer is that we see the growth opportunities as been very substantial for the Perrigo company. Number one, relative to where we sit as a company. We really think there's three mega trends that continue to drive the business, each of them contributing to the growth.

First one is just what I would call the demographics and the intensity of usage of pharmaceuticals. We expect to go up as we've just seen growth in the population, and more importantly growth of the over 65 population that uses 2.7x more pharmaceuticals. Number two, we expect the continued movement form national brand to store brand.

That's a trend that we continue to see even despite some of the new launches that have occurred. We continue to expect to see more products shift – more consumers shift from national brand to store brand. And number three, it's the movement of new products that are today prescription moving over-the-counter.

We expect that will continue to also contribute to our growth. So we still think there's a significant growth opportunity.

On top of that though what I think – the second part of your question – is that we see tremendous opportunities now that we've aligned and acquired the Omega organization, and what that means for us on the Branded Consumer business. And importantly the same things that have helped Perrigo grow in the past, where we bolted on incremental assets.

We think we can do that same thing. We think the GSK asset, the Yokebe asset are just the beginning of things that we can bolt on as we look to continue to grow that Omega asset. So we're really excited about the future. And I think that's just a full review of how excited we feel about where we can go with this business.

Operator, next question?.

Our next question comes from Randall Stanicky..

Great. Thanks guys. I just have a two part question. First, Joe, you have spent a lot of time highlighting your exposure to what I'll characterizes as a much more stable consumer and consumer-facing business.

What's your appetite to add more generic exposure outside of a Mylan transaction? And how do you think about formulation technology, geography, and then possible size? Then I have one quick follow-up..

Okay. So on the question of what we've done, you're absolutely right. We've built our business. We've done some additional acquisitions, most notably the Omega acquisition. Now that we're sitting at approximately 75% of our revenues are very strong revenues in our consumer-facing business, we think that gives us a very durable platform for the future.

But as I've said in the past our – I cannot say it more strongly – that our Rx business is a very unique business. It is a business model with incredible, incredible margins.

Most recent RX margins – let me just get the specific amount, I don't want to give you an inappropriate number – but the most recent gross margin was 64.8% with a 49.5% operating margin. That's a very unique Rx business. If I can find additional assets that fit into that – and that means that there's some degree of difficulty in producing them.

For us it has always been extended topicals, things absorbed topically, dermatology, respiratory, nasal, ophthalmic, et cetera, I'm going to continue to look for those types of assets. So I do think there are some out there, and we'll continue to look for them. So I don't want to limit us only to consumer.

I do think there are some Rx assets that would make sense to us as a company, notwithstanding, as you said, the Mylan situation for us.

Is that what you were looking for on the formulation comment?.

Great. Yeah. Yeah. Yeah. Just the second, or part B of my one question would be just, you called out on slide 7 the smoking cessation and the store brand growth over national.

And I just wanted to get a sense, has GSK come back? Have you seen that impact? And are you growing through that return? And how much of what I think is about a $250 million base for you, how much of that do you think you can hold onto if GSK does return?.

GSK is back in the marketplace to be clear. And we are continuing to grow through this situation. And as I said in the part of the call it is a very good business, very large business for us. But one that we think has tremendous upside for us in the future, especially now as we've acquired the GSK branded assets, not U.S. assets, but ex U.S.

assets, most notably in Europe. We think that gives us another opportunity to grow the product. One of the unique items about Perrigo is now paired with Omega can do something that Omega couldn't do by itself, Perrigo couldn't do by itself. We could buy those GSK assets that were available in Europe.

So not only do we see it growing here in the United States, as evidenced by the IMS or the IRI data, but also we see the opportunity to grow our smoking cessation category in Europe and around the world. So we're really excited about it. We think we'll continue to grow that business very consistent what we've seen historically..

That's great. Thanks very much..

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

Thanks. I'm going to ask my one question plus, plus, plus..

Well done, Sumant..

How much more leverage is there in your system on distribution selling and administrative expense? And where do you see the opportunities for cost reduction if there are any at Perrigo right now?.

Sure. I'll start. Judy, you might want to add to what I say. But I guess I'll say we think there's plus, plus, plus opportunity, Sumant.

Specifically what am I saying? First of all on the leverage we're seeing is that there is no doubt that as we do additional M&A, we think there's chances to just get more items on the truck, as we ship our truck from Perrigo to our large retailers.

So that's both here in the United States, but also now as we're doing those acquisitions, bolt on acquisition in Europe. So we clearly think there's a chance to leverage additional margin or leverage the P&L. Second comment I would say is that I don't want to miss the chance to say it one more time.

The supply chain team from Perrigo and our entire operational and manufacturing group have just done an outstanding job of just running our facilities very efficiently and finding continuous improvement projects to lower our cost of goods sold. That has given us tremendous leverage in our P&L and especially in the margin structure as I talked about.

Our Consumer Healthcare operating margin this quarter at 21.4% is – it's certainly an all-time record. And I think really reflects the fact of the team just working very well to take cost out of the system and allow us to leverage what we've done and historically and just do more of it.

Judy, anything you want to add?.

The only thing I would elaborate upon is as you're all witnessing dynamic changes in healthcare and life sciences, you're seeing different delivery processes and systems coming about. And our customers and retailers partnering with others to reach patients more efficiently and effectively and broaden the reach of healthcare.

Our supply chain team and distribution folks are already reaching all of those players. So as that dynamism continues we're able to continue to leverage our relationships and our distribution – physical distribution network to serve these newly-formed entities as well.

So that dynamism continues to be served with the assets that we have and the competency that this team has built..

Yeah. Probably one last comment I'll make before you go to your second part, Sumant, is that often people ask me about the question about, well the retailers are putting more pressure to get better pricing in the marketplace. And that is true. But please make sure that everyone realizes that we are doing exactly that same thing with our API suppliers.

We are putting pressure on them to get better pricing for our raw materials. And I think that's part of what you're seeing here is the – our ability to take advantage of what've always affectionately referred to as a moat and how we look at our business and how we can continue to seek out additional pricing improvements for our cost of goods sold.

So it's clearly we think an important part of what brought some of this success, and certainly on the legacy business record operating profits.

Did you have a second part?.

Just on how much cost could come out of the system. But I think you touched upon that..

Yeah. Okay.

Operator, next question?.

Our next question comes from David Maris from BMO Capital Markets..

Good morning. Joe, we agree with you that the offer significantly undervalues Perrigo. But one of the things the Allegan did when they had an unsolicited offer is that they drew a very bright line between the two different business management styles and business models. Some of that – done a little bit so far.

But today you mentioned a bit about how Perrigo has best in class compliance.

After the earnings being out on the road to talk a little bit about this unsolicited offer, is it your intention to do maybe a stronger job in explaining the differences? Do you see a difference in the corporate cultures? And then separately if the (35:01) in their favor, do you intend to then reach out to other interested parties? And are there other interested parties? Thank you..

So you asked a lot, David. I'm going to try to get through all of them. So first of all, thank you for your commentary on supporting our position that this offer by Mylan substantially undervalues the Perrigo Company. On the question of management style, there's no doubt there are differences in the management style of the two companies.

I really don't want to go into any of the positives and negatives on this one. There will be a time and place for that should that get to the point. I think what we've tried to focus on predominantly right now, though, is that we're very proud of what we've accomplished.

We're very proud of winning the Corporate Governance large-cap company of the year. That's something that Todd and the entire team worked very hard at accomplishing. And we're very proud of things like that. We're very proud of our corporate culture and what we've accomplished as a team.

The Perrigo team has been together for the most part, this entire team, we've been together for going on nine years now. So it's a team that knows each other very well, knows how to get things done. And importantly delivers on the bottom line. Yes, we have challenges like any other team.

But we've done a great job working together as a team and achieving great results, both for making quality affordable healthcare more affordable for people all over the world. So we're excited.

And as we think about the future, there's even more we think we can do to make this a reality, especially knowing that we think we're in a winning spot in healthcare. We think we've got a durable position over the long term. If, at some point, the Mylan team wins their shareholder vote, then we can talk more about it at that time.

Right now, I think we want to stay focused on continuing to drive our Base Plus Plus Plus strategy for the future..

Great. Well, thank you very much..

Thank you.

Operator next question?.

Your next question comes from Marc Goodman from UBS..

Morning. So first in Consumer, the discontinued sales were unusually high. Can you just give us a little more color on that? Second, Omega, just remind us first of any seasonality in that business. And second, you mentioned distribution.

How much are distribution sales relative to like just regular consumer direct product sales? Or maybe I didn't understand it. And then third in the generics business, just remind us of where we are in this price increase dynamic and how sustainable you feel like those increases are? Thanks..

Okay. I'll probably take the first question on the Consumer Healthcare and the third question. Judy, let me do them both and then you can talk about Omega and the distribution and then the Omega seasonality question. So on Consumer Healthcare, yes, there are discontinued products. That's a normal part of what we do at Perrigo.

Let me try to describe it, because it is a good question, Marc, that you're asking. As always, we continue to refresh our portfolio to stay even with the national brand equivalent approach to our business. So that means there are changes that occur in the portfolio. So an easy example is in our pet healthcare business.

This year, you know we launched our fipronil plus. That is obviously a new product, a very exciting new product for us. And we've done well with it.

Having said that, though, we had a fipronil with nobeloron (38:33) as part of our business, as the result of launching the fipronil plus, we decided that it was appropriate to discontinue the fipronil nobeloron (38:44).

When we do that, though, we find ourselves promoting products that are having a national brand equivalent product, which is always good. Also in that particular case, it's a national brand equivalent product that has a better margin.

So that's part of what's driving our bottom line for this business as we shift from one product to the next generation of product. We discontinue the older generation. It's a natural part of what we do at our company. So that's probably the first part of it.

I'm going to go to your third part on generics and pricing, and I'll go back to Judy for the second one. On the generics and the pricing environment, our team has done a great job at looking at pricing, looking at both making money when we're first with our product, which is an example of the AndroGel 1%.

And certainly, as I mentioned today, we'll do the same thing with the AndroGel 1.62% when we launch that. So we get good pricing there. And finally, we get good pricing when we're the last ones with the product, or one of the last few with product. So across that portfolio, we think there's still opportunities to do pricing.

We'll continue to look at it. We think there's something that we'll be talking about in the future for pricing. But I think it really supports the strength of that operating profit line of 49.5% and what we achieved with our Rx business in the quarter. And importantly the gross profit line is 64.8%.

So for those reasons, we think we've got a strong Rx business. And we look to still find some additional pricing opportunities for the future.

Judy, you want to talk about the Omega portion of the question?.

Yeah. Sure. So just backing up, the question was on distribution. So the Omega business has historically had the leading distribution of generics and some branded products out of Belgium from their historical presence there. And on a pro forma go-forward basis, that would represent about 15% of their revenues.

So if you think about in previous calls we talked about a run rate, a full-year annualized run rate, of Omega of about $1.6 billion revenue run rate. About 20% was distribution. And on a go-forward, it would be about 15% go-forward. And when you talk about seasonality, the June quarter was a very strong quarter, as I mentioned in the prepared remarks.

They had an important launch in the June quarter. And the distribution sales were also heavily seasonal. Why? First of all, you have your cough/cold allergy season coming off, just like in the United States.

You have the focus also in the summer of having products available for stocking, because if you know the behavior in Europe, July, August, very, very heavily vacation-oriented. And many of the distribution systems move differently. So you have a little bit more focused seasonality in the June quarter.

So it's not unusual for that quarter to be their strongest one in Europe. So we'll be talking about that on a go-forward basis as well, just like we do for our primarily U.S. Consumer Healthcare business.

But suffice it to say, the rest of the run rate for the remainder of the year, slightly lower, new product launch combined with what we expect to be a good, solid second half of the year..

Thank you, Marc, for you question.

Operator, next question?.

Your next question comes from Gregg Gilbert from Deutsche Bank..

Thank you, guys. I'll stick to a two parter. First on CHC, what can you do organically to improve revenue growth trends for CHC? And inorganically do you see acquisitions of size potentially out there for CHC in the U.S.? And the second part of the question, Joe, was touched on earlier but not addressed head on.

Under what circumstances would the board officially explore all strategic options for the company? Or should we assume that's already underway? And I'm curious how that plays into your prediction that there would be a – quote – difficult path to completion between that 50% and the 80%? Thanks..

Sure. On the question of organic growth for CHC, Gregg, always – it's – there's always going to be some amount of growth relative to just the demographics and population. Just some of growth, it's going to be from national brand switching to store brand.

But the biggest part of the growth and the biggest exciting part of the growth is when we launch those new product.

When we have a chance to – which we hope in very, very near future, certainly over the next 12 months to 24 months – launch the equivalent of Flonase, launch the equivalent of a Nexium, a Mucinex D, a Mucinex family, Aratozine (43:26) softgel, just to name a few. Those are the big ones that we think will help propel our growth.

And it's why we said with confidence that we expect to launch over $1 billion of new products in the next 3 years, when you put these types of products into the marketplace. We think there's a significant return for our shareholders.

On the question of inorganic Consumer Healthcare growth, yes, we do believe there is some additional bolt-ons that are in categories that we've talked about in the past, adult nutrition, ophthalmics, pet care, diabetes, are the areas where we think we can still support some additional bolt-ons with our business.

And as Judy said where we're generating records amount of cash, we think we can use that cash to do some additional bolt-ons and just make our business more valuable to the large retailers. On the third comment – or a third part of your question, strategic options. We do believe we have strategic options.

Right now we are focused on running our standalone business. We think that's the most important thing to do as a company. And as you can see we're doing it quite well with what we've shown, just a 34% revenue growth, a 48% gross margin growth, and a 35% operating income growth, a 25% EPS growth.

We think that's an important part of our success in the standalone, and we're going to continue to focus on that. If in fact that we get to a point where we think there is a – if Mylan does win their shareholder vote, and there's initiation of a tender process.

At that point we'd make some strategic decisions as a board as to what's the right thing to do for the company. I do know there are other companies that have expressed some conversations to me. But I don't want to go too far too fast. I think we're going to continue to stay focused on what we're doing as a company on a standalone basis..

That's helpful color. Thanks a lot..

Your next question comes from Linda Bolton Weiser from B. Riley..

Hi. Thank you. So you gave quite a bit of color on the Omega and the good sales there and the new products and the seasonality.

But I was curious about in terms of the new products, do you have a window into like how does 2016 look relative to new product sales? Would it be kind of higher or lower then what we're seeing in 2015? And then secondly, Joe, if you could just give a little more explanation on the omeprazole magnesium approval? I mean to consumers it's known as Prilosec OTC, and it's kind of transparent to them I think what it's actually made of.

So is that going to be a cannibalistic product? Or are you actually going to get more shelf space by putting another product on the shelf? Can you just explain that a little? Thanks..

Sure. So let me just start with – I'll start with some comments on our new product portfolio. And, Judy, if you want to add anything to that please free to do that. First of all our – what I think the best thing I can say right now and what we have said out in the marketplace is that we expect $1 billion in new products over the next 3 years.

The majority of those products will be on our consumer side as we've said that, just realizing that approximately 75% of our revenue is on the consumer side. Admittedly that's looking at both Omega and Perrigo together. But that majority of it will be on the consumer side.

The only final comment I would say is while we have not given individual year-by-year commentary, we do expect the new product flow to be approximately a third, a third, and a third. Now it may move from year to year just simply as FDA approvals come in. But it's approximately a third, a third, and a third is the way I would characterize it.

Obviously a little bit more in the outer years, but the approximation a third, a third, and a third. On the question of omeprazole magnesium we think it's important. It's not – it would be the very first omeprazole magnesium tablet product in the marketplace.

As to how we launch that product and what we do with the product, I think we're going to continue to weigh our options on that. But to be clear it is the very first tablet formulation that is omeprazole magnesium equivalent to Prilosec OTC. Our product continues to perform very well. So I don't want to overpromise for this product.

But it is an optional alternative for us to think about as we think about the future marketplace for our equivalent of Prilosec. Judy, anything else you wanted to comment on on the new products? Or....

Just wanted to make sure – a little color there, Linda. As Joe said we've hit $1 billion in new products, think a third, a third, a third. Talking greater than $300 million next year, but that is without Omega.

At this stage we're still in the process of scrubbing and making sure that as we defined the plan for new products that we're hitting the same definition. But suffice it to say that the team has quite a long list of new products opportunities both organically as well as their plans for putting in product that is currently in the I'll call it U.S.

consumer portfolio and plugging that into their format. Which as we've talked about is a key driver of long-term future revenue growth within the Omega platform. So we haven't called that number out yet. As we get better clarity we will. But suffice it to say that will be accretive to the $1 billion we've talked about..

Great. Thanks..

Your next question comes from Elliot Wilbur from Raymond James..

Thanks. Good morning. And you've touched on this subject matter I guess a couple times, but maybe we could explore it in a little bit more detail. Because I do think it's an important trend break and certainly we'll entertain questions about durability.

But specifically the gross margin performance in the Consumer Healthcare segment, obviously a record level and well above recent performance trends. And certainly Perrigo of nonbelievers I guess over the years have sort of pointed to absence of margin expansion even with growth.

And this quarter obviously stands out as a dramatic exception just sort of that trend. And just thinking about a couple of the push/pull factors here, specifically the discontinued products. I would assume that those were relatively low margin. And also the continued shrinkage of the contract manufacturing business.

Those had positive impacts on margin trends, but you also talked about operating efficiencies as well.

So maybe just a little bit more granularity there so that we could perhaps understand the durability of the performance this quarter going forward?.

Okay. So, Elliot, you actually know our business very well. I congratulate you. You've touched on them. I mean I....

I'm clearly – I come – I'm for sale, Joe, at the right price. Just throw that out there..

So getting back to the question, the gross profit, absolutely. I mean you hit on it. Very – product mix was important. We sold more of the higher margin, less of the lower margin items. That obviously has an impact on revenue as you appropriately point out. But we think that's important that we continue to stay equivalent to the national brands.

So we follow those national brands very closely. As we get better products in the marketplace we discontinue some products that are just not as valuable. Number two for us on this question of mix is as the brands switch from a standard tablet to a fast dissolve, we want to be there.

We want to be there with – for example we just got the Advil quick dissolve or fast release product approved. That's another example of a brand going after a new formulation. We're following, we're following quickly. We'll have that product. And to our knowledge we're the only one with that product approval.

That will be another example of an upside opportunity for us relative to margin. So those are things that we do on the margin side for – yes, we discontinue products. But importantly we try to launch new products that are national brand equivalent that have better a margin structure.

On the other point of it clearly though is the operating efficiency of the team, both from just the continuous improvement projects. We have hundreds of continuous improvement projects that we run through the team. We've tried very hard to make that a part of our DNA at the company. And indeed I think we've had success doing that.

And we'll continue to look to try to get operating leverage in our P&L. As a final point you didn't mention, I do want to make point of it though is that very much as our customers have come to us for pricing discounts and rebates, et cetera, we've done the same thing with our supply chain.

We've said to our raw materials suppliers, listen, we can get some incremental business by working with large customer X. If we do that and can do some things can we get some additional discounts on our cost of goods? And indeed we've had success doing that.

And we think that's going to be an important part of our future, to your question on what we're thinking about in our future.

Judy, anything I left out?.

So it was a tremendous margin quarter, there is no doubt. As I commented on earlier, we are still looking at having a very strong margin quarter for the consumer business as Joe pointed out. This quarter was particularly good with the volumes and the amazing manufacturing efficiencies that we saw. It really translated into a bump in those margins.

And we expect them to be strong through the year. But as I commented margin wise it would be the strongest quarter for the calendar year. But looking still overall a strong performance in gross profit for the year. And then on an operating margin basis, again operating margin as well, second quarter strongest.

It's just with timing of R&D spend that the SG&A cost savings and efficiencies that the team saw in this quarter we expect to continue throughout the rest of the calendar year as well.

So good lean operating efficiency of the overall team both on a sales and marketing side and on manufacturing have continued to contribute to the ability of the team, even with some dynamism on the top line that you saw to be able to execute well on the bottom line..

Operator next question?.

Our next question comes from Jason Gerberry from Leerink Partners..

Hi. Good morning. Thanks for taking my question. So just curious on Omega I think you provided the growth of the top 20 brands year on year.

Just kind of curious if you'd be willing to provide the year-on-year growth relative to the prior year quarter? And then, Joe, just curious with Pfizer terminating the Lipitor OTC switch program, just curious your updated thoughts on whether there's life for the statins in the OTC channel? Thanks..

Sure. I don't know. We haven't given out specific numbers on Omega for its growth, but it is double digits I think is probably the way I'd refresh – rephrase the question..

So on a constant currency basis the top 20 were 11% year-over-year. For the whole portfolio directionally mid-teens would have been the year-over-year growth. You've got some noise in there with foreign currency, et cetera, et cetera, but approximately 14%, 15%..

And the second part of the question was on statins and Pfizer's decision on Lipitor. I think as I've always said I never thought it was 100% chance of probability. I did say 60/40. It appears though that the results of the Pfizer clinical trial did not result in patients going on to see their healthcare providers.

I think in that situation it's probably unlikely that statins will come to the marketplace. I can't rule out somebody else will try it with a new refreshment and view on it. But I think based on this last attempt by Pfizer, I think it's probably unlikely that we'll see statins in the near future come to the marketplace for OTC..

Okay. Thank you..

Our next question comes from Annabel Samimy from Stifel..

Hi. Thanks for taking my question. I wanted to just touch on CHC a bit more. You kind of answered this, but it was supposed to be a big animal health quarter, as you were selling into the channel for the season. And it seems like there was actually some declines. And you had mentioned that you had switched over product.

But as you look at animal health is there as big – is it as big an upside opportunity as you expected? And to what extent do you need to supplement Consumer Health in general with inorganic growth? And are you placing more priority on Omega right now and growing European consumer side as opposed to the U.S.

consumer side? And just a separate question on guidance clarification. It does or does not include the GSK products and the German nutritionals? Thanks..

Okay. So I think I got about five parts question in there. I think I'll try to get them all. On the question of animal health. Animal health performed reasonable, but it did have a problem. The problem was that – it was Merial. Merial's influence on two parts of it.

One part of it was clearly the introduction of that second store brand equivalent product that which we believed – continue to believe is a breach of our agreement. We'll find out. And play that out in the court system at some point into the future. The second part of the animal health story, they also had some contract manufacturing business.

That is part of what we saw. The base business, though, in terms of what we do every day, store brand, selling our fipronil plus product, continues to perform well. But we do have some things we have to offset.

On the question of the switchovers, we expect to see more products continue to go over-the-counter or be available for us in terms of those flea and tick products. And the team is doing a good job to get the equivalent of those products into the marketplace and to continue to refresh that pipeline of R&D efforts on the pet care side.

On the question of the doing additional – I think this part was additional bolt-ons for the U.S. business. We clearly think there was more opportunity there.

And then the second part?.

Are you prioritizing Omega over the bolt-ons in the U.S.

I guess?.

The good news is I don't think we need to prioritize. Well, we have to clearly prioritize. I should say that. We have to prioritize. But I think we have the resources now to do both. I think with what we can do in both in the European platform and the U.S. platform, we have the capabilities based on cash flow.

But, Judy, why don't you comment on that part?.

And then, on the Omega modeling question in the guidance. As I said, the June quarter is the largest quarter for the year, a slower September quarter with the summer months and summer holidays, people being away from home.

But combined with the expectation that we would expect to be closing on our two recently-announced acquisitions in that September quarter, which then means that we have said we have put approximately $25 million of sales associated with the combination of those two transactions in the fourth quarter of the year.

So there is, in fact, an amount of $25 million included in the guidance and in our forecast for those two acquisitions and Omega..

Thanks..

Yeah..

Operator, next question?.

Your next question comes from David Risinger from Morgan Stanley..

Hi. This is actually Emil on for Dave. Just a quick question, you mentioned priority in consumer.

Can you discuss the prioritization in terms of inorganic versus organic? Do you guys view in these that you need to do something inorganically in the near term, especially against the stock out of $1 billion over the next three years organically? Thank you..

Well, I think probably the best way I answer that question is based on our history. I think we've always sought to have a balance of both the organic and inorganic in our growth. And I think we'll continue to look at that. We think doing both is really the best answer for any company out there.

So we'll seek to do the inorganic to be clear, looking at those bolt-on transactions. We think they're very valuable and very accretive to our shareholders. So we'll continue to look at those.

But the important comment about what we do every day here at Perrigo is try to find a quality product, make it more affordable, and use our research and development efforts to come out with the new product flow. I mean I think just my commentary on new products for us is really critical.

As I said, to my recollection, this is an all-time record of having in one week three ANDA approvals from the FDA. But look at what they are. They are products that – AndroGel 1.62%, first to file. Advil fast release, to our knowledge, also first to file, and certainly will be out there first approval for sure.

Omeprazole magnesium, yes, we launched an omeprazole base product into the marketplace going back now almost seven years ago. But we are not content to just sit there. And we want to continue to go after the national brand equivalent. We have those opportunities.

We're going to continue to take them to make sure we make a quality product, make it more affordable for society, both here in the United States and around the world. And that's what we think is really exciting and motivating to us as a company. Operator, I think I have time for maybe one more question..

Our next question comes from Jami Rubin from Goldman Sachs..

Thank you. Judy, I have a question for you and then a follow-up for you, Joe. When you talked about the second half of the year with each of the businesses, you threw a little bit of cold water in terms of expecting higher expenses, lower margins, et cetera. Or that second quarter was sort of a peak.

Are you blessing the lower end of the $7.50 to $8 guidance range? And what are the key variables to that $0.50 difference? And then just, Joe, a follow-up and maybe this is not a fair question, but I think we're all trying to get at this.

In the absence of a white knight investor for Perrigo, how do you drive upside to your share price as a standalone company? Just based on consensus estimates, the stock trades at a 24 multiple now on this year's earnings, a 22 multiple on next year's, which is comparable to Celgene.

And clearly, while you've done a great job with deal activity and top line growth, if you strip out Omega, there was no top line growth this quarter. So how do you think about driving upside from a multiple as high as it is, in the absence of consolidation, where Perrigo is involved? Thanks..

I will take your first part first. So I never like to throw cold water on anything, that's such a downer. I just wanted to make sure....

Well, this is your opportunity to clarify that. Thank you..

All right, all sunshine. So just wanted to make sure that everyone had a line of sight in helping you be able to model, because, as you know, we don't go out and give detailed quarterly guidance. We try to give you an idea of how to shape the arc of the year.

And also we have this new vernacular as we're switching over and going into calendar year mode. If you were to lay out, as I'm sure you have in your models, the overall margin dynamics for our component businesses, you see the seasonality really reflected more in consumer-facing businesses, just because of consumer-facing behavior.

And we're certainly seeing this in Omega as well, is that the June quarter is historically the highest quarter. There's just a lot of volume movement through the plants, as we both are selling through as well as preparing for fall launches.

You see slower, typically slower, sales in the September quarter, because of the vacation season, which is even exacerbated and seen more in our new European business. And it's just important. Also, we have a lot of activities going on usually in ramping up with new lines and new production in the end of the December quarter typically.

So there are many normal recurring behaviors that go on in the second six months of any calendar year.

And it was also very important, I had to call out, just because of the inclusion now of Omega in our pool of earnings before tax, that if your model had had 17% effective tax rate for every quarter, our model has 18.5% in the back half of the calendar year.

Because of this dynamic as I said before about the requirement in doing the accounting – very boring accounting discussion here – of how one must book effective tax rate. You have to take the blended rate, forecasted for the reporting period. And as you know, because we're in this stub year transition, the U.S.

GAAP – quote – full year reporting is the 6-month stub period ending December. So that stub period accounting will be more at an 18.5% range. So that is why just to give you color on how to think about the shape of the full 12 months and the seasonality therein.

That is why I wanted to – it sounded like cold water – but just making sure you had a crisp way of viewing. So that you weren't overstating or getting ahead of just the shape of the year and confirming the guidance that we've provided already..

On your first part – or second part of your question, Jami, the issue for me really goes back to how do we continue – as a standalone company how do we continue to be successful? And I think really the best way to say it is it's that Base Plus Plus Plus approach. Looking at what we're talking about there. Clearly new products.

Just getting three new approvals this week I think just is a great illustrative example of what we – why we're excited about it, why we think – if I could add $1 billion of new products over the next 3 years into our portfolio, we think that's going to be an important part of driving both top line and our bottom line, because as you know our new products tend to be more profitable.

Number two, I know that clearly we always look at quarter versus a year ago. But if you think about what we've done sequentially, our Consumer Healthcare business is up $61 million or approximately 9% sequentially if you go from quarter one to quarter two. So I know that that's not always the way you look at it.

But I do think sequential is another important part of the consideration as terms of the direction of what we're trying to accomplish. Number three, for me this is the first quarter that we've had a chance to talk about Omega.

Omega we think is tremendously important to our future and what we're looking to try to accomplish as we take those businesses and we get the revenue synergies and the cost of goods sold synergies in Omega. We think that's going to be an important part of it. And obviously as Judy talked about the business has done quite well in the quarter.

And we expect to see great things from Omega. Final comment I offer and it really is – it reflects on also on what Judy was talking about for our cash generation. We're generating a significant amount of cash. We intend to put that cash back to work in M&A.

Expect to see more of the bolt-on transactions that we think are going to be very accretive to our shareholders. And we believe that's going to help us tremendously. Not just the GSK asset, the Yokebe asset, but the other assets that we think are out there and will fit very good with both our European businesses as well as our U.S. business.

So that's the excitement we see. That's why we're very passionate about our standalone business and what we think are great prospects for the future..

Operator thank you very much. And everyone thank you very much for your interest today. We appreciate it. If there's any other – we'll have a chance to follow-up over the next days and weeks ahead. If there's any questions, please get in touch with Art Shannon or Brad Joseph, who will be happy to try to answer anything further.

Have a great day everyone..

This is the end of today's call. You may now disconnect..