Bradley Joseph - Vice President-Global Investor Relations Mary Lauren Brlas - Chairman John T. Hendrickson - President & Chief Executive Officer Judy L. Brown - Executive Vice President, Business Operations & Chief Financial Officer.

Louise Chen - Guggenheim Securities LLC Gregg Gilbert - Deutsche Bank Securities, Inc. Randall S. Stanicky - RBC Capital Markets LLC Elliot Wilbur - Raymond James & Associates, Inc. David R. Risinger - Morgan Stanley & Co.

LLC David Maris - Wells Fargo Securities LLC David Michael Steinberg - Jefferies LLC Marc Goodman - UBS Securities LLC Annabel Samimy - Stifel, Nicolaus & Co., Inc. Christopher Schott - JPMorgan Securities LLC Sumant S. Kulkarni - Bank of America Merrill Lynch Douglas Tsao - Barclays Capital, Inc. Jami Rubin - Goldman Sachs & Co.

Timothy Chiang - BTIG LLC Jon R. Andersen - William Blair & Co. LLC Derek C. Archila - Leerink Partners LLC.

Good morning, my name is Cassandra, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Perrigo's Calendar Year 2016 First Quarter Earnings 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. Thank you.

I will now turn today's conference over to Bradley Joseph, Vice President of Global Investor Relations. Please go ahead..

Good morning. Welcome to Perrigo's first quarter 2016 earnings conference call. I hope you all had a chance to review our press release which we issued earlier this morning. A copy of the release is available on our website, as is the slide presentation for this call.

Joining me today is Perrigo's Chairman, Laurie Brlas; Chief Executive Officer, John Hendrickson; and Executive Vice President-Business Operations and Chief Financial Officer, Judy Brown. I'd like to remind everyone that during today's call, participants 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. In addition, in the appendix for today's presentation, we have provided reconciliations for all non-GAAP financial measures presented. Turning to slide three.

Next, I'd like to walk through the agenda for today's call. Laurie will begin by discussing Perrigo's recent CEO transition process from the perspective of Perrigo's Board of Directors.

Next, John will walk through his priorities and overarching management philosophy and then, will discuss his perspectives and insights on the future direction of Perrigo by segment. Judy will then walk through the financial results for the quarter and guidance for calendar 2016.

Finally, John will discuss the team's philosophy around guidance and what you should expect from Perrigo going forward, concluding with Q&A. I would now like to turn the call over to Perrigo's Chairman, Laurie Brlas..

Thank you, Brad. Good morning everyone and thanks for joining us today. I have been a member of Perrigo's Board of Directors since 2003 and have the privilege to serve on both the audit and remuneration committee.

During my tenure on the board, I've come to deeply appreciate the strength of this company and its management as well as our ability to value while effectively addressing challenges. I'd like to take this opportunity today to talk with you about our CEO transition process.

As previously announced, following our robust succession planning process, on April 25, the board of directors unanimously selected John Hendrickson as Chief Executive Officer. Speaking on behalf of the entire board, I can assure you that the choice to elevate John was clear.

John has been essential to the company's success in each of his roles with Perrigo. John led and shaped the operational backbone of the organization, designing a vast and multi-faceted infrastructure to produce and supply a broad and complex portfolio of products.

He showed distinctive leadership as Head of our Consumer Healthcare business from 2003 to 2007. During that challenging period when we were grappling with the movement of pseudoephedrine, which is the largest product in our OTC portfolio at the time behind the counter, John led the team to increase revenues.

All functions reported to him including R&D, regulatory, sales, marketing and operations. Since 2007, John has served as EVP and Head of Global Supply Chain until his promotion to President last year.

His manufacturing and supply chain leadership, exceptional operational track record, and ability to connect with and get the most out of his people give us great confidence in our decision to promote John to President, as well as our recent decision to appoint him to CEO.

In John, we identified a leader who knows the business, is committed to our mission and could make the choices necessary to deliver value to our shareholders. The board recognizes, of course, that the success of Perrigo does not start or stop with one person.

John is supported by a talented, experienced team, and the board has full confidence in the team's ability to work effectively with John, execute and deliver shareholder value. Finally, I want to underscore my remarks by highlighting our commitment to corporate governance and transparency.

To enhance independent decision-making at the board level and to align our structure with what we believe is appropriate for the company at this time, the board has chosen to separate the roles of CEO and Chairman of the Board. Our commitment to shareholders will remain, as it always has, essential to our decision-making process going forward.

And now, I'd like to turn the call over to John..

Thank you, Laurie, and welcome, again, everybody to Perrigo's first quarter 2016 earnings call. I want to start by saying how honored and privileged I am to be CEO of this great organization and lead our more than 13,000 talented employees.

During my time with Perrigo, I have served in a variety of different capacities, as Laurie outlined, and I'm acutely aware of what this great business has to offer customers, consumers and our shareholders.

I will say it unequivocally, at its core, Perrigo is a truly diversified unique business transcending generic prescription products with a resilient OTC base.

I believe there's a long runway for growth ahead of us, and I am confident we have the right cohesive management team in place to focus on the execution that is required to deliver clear value to our shareholders. That said, I know that meeting or exceeding expectations is the foundation for establishing your trust.

This will be my personal focus and the focus of the management team going forward. Turning to slide six, our recent track record of performance against our own expectations is unacceptable. I understand that; our team understands that. My focus and then of my team will be on operational discipline in generating consistent results.

I'm confident we will deliver, given our opportunities for growth, the power of our platform and our deep long-standing relationships with our customers. We will deliver our results. Now, let me highlight the key components of my overarching leadership principles for our business.

First, as I said, our operational execution is the cornerstone of our success. Developing marketing, purchasing, manufacturing, distributing a broad complex array of customized products have always been our strengths.

Quality continues to be the driving force behind the organization, and we have the infrastructure and quality track record to consistently move our products onto shelves for our customers and into the homes of our consumers. Second, I'm action-oriented. I've already made critical decisions in a number of our businesses.

I will continue to take appropriate steps to capitalize on opportunities and effectively address our challenges. Third, I felt it important to share my guidance philosophy, which we'll address in more detail soon. I'm unequivocally committed to transparency and will be actively engaged with and listening to you, your questions and comments.

That's how I've always worked with our customers, suppliers, employees and shareholders. Finally, our goal is to ultimately create value for the shareholders, the owners of our company. To that end, my primary focus at this time is on our core operating and organic growth vehicles.

As always, we will continue to evaluate ways to refine and enhance our portfolio of products to customers and consumers. We will continue to look at synergistic bolt-on acquisitions that fit strategically within our core infrastructure. And we will continue to evaluate methods of returning capital to our shareholder base.

Now, I'd like to give you my insight into the Perrigo advantage and my perspective on each of our business segments. Looking at slide seven, our Consumer Healthcare platform is core to Perrigo. We have a strong and durable position with numerous products, dosage forms and capabilities. Our U.S.

Consumer business includes more OTC abbreviated new drug applications than any other manufacturer, even including the large branded pharmaceutical companies that you all know. This ability to bring new products to market will continue to drive growth in our CHC segment.

In addition, we have one of the broadest store brand OTC supply chains in the world. That means the first raw materials being procured through manufacturing, all the way through logistics and distribution, ultimately to our customers.

One truck ordered product leaves a Perrigo distribution center every 30 minutes, 24/7, 365 days a year to go to our customers to ultimately go to our consumers. We are the company retailers look to as their partner of choice. We are the company retailers look to, to drive value for their consumers, and ultimately their shareholders.

This segment continues to be led by Jeff Needham. Jeff is an industry innovator with over 30 years of experience. The deep customer relationships we have help ensure we continue to be a valued partner in this consumer space. Next, turning to our Branded Consumer Healthcare division.

Despite some challenges, my view of this business segment is one of optimism about the power of the platform that it provides us. Perrigo is now able to distribute products to an additional 32 countries globally, reaching greater than 300,000 pharmacists and retailers in these countries. The European OTC market represents $30 billion a year in sales.

Since the beginning of this calendar year, I worked with the country leaders and the executive team in our Branded Consumer Healthcare division to develop a deeper understanding of the day-to-day operations of the business. We are now fully and effectively integrating BCH into our existing leadership structure.

We are building upon the team's core sales and marketing strengths, implementing our own strong operational controls and structures. As CEO, I have made a number of additional changes to the BCH business such as coming to a mutual agreement with Marc Coucke that he would resign, and appointing Sharon Kochan as Head of the BCH business.

Sharon's background, disciplined approach and ability to drive organizations to peak performance made the decision to appoint him to lead the BCH team a clear one. Sharon was the architect of our Rx business, which he built from the ground up with a superb executional track record.

Track record that includes the acquisition and integration of various bolt-on products and businesses during his tenure. As the current head of our international business, Sharon has also overseen diverse markets, including both branded and store brand offerings in multiple geographies such as Mexico and the UK.

I am confident that the growth, execution and financial accountability of the segment will be enhanced under Sharon's leadership. In addition to personnel changes, Sharon and I are providing our strong BCH leaders with increasing responsibilities to lead new geographies; prioritize our portfolio and divest underperforming assets.

We are also emphasizing new and innovative products, such as our nicotine replacement therapy franchise, acquired from GSK last summer. Our leaders are now aligned with the strategy to continue focusing on our top 20 brands to ensure growth of this strong portfolio.

And to be clear, today, these top 20 products continue to grow at a faster pace in the markets that they are in. These changes are in conjunction with the important decisions Judy has made in the finance organization.

She has enhanced financial management and we are actively in the process of putting BCH's sales, forecasting, inventory control and operations planning onto Perrigo's existing platform, and upgrading the financial planning and analysts to support these activities and drive growth.

Again, I want to reiterate that the top 20 brands that we have in the business today continue to grow faster than the markets. We have a supply chain and a platform to support Pan-European growth, and we can add products to further leverage this business.

Turning now to our Rx business; our Prescription business is an important part of our diversified, consolidated portfolio. Our Rx business has a clear, strategic rationale as part of our broad diversified portfolio, and is a great complement to our core consumer competencies.

Products, plans, procurement, technology distribution are all highly synergistic with our OTC business. And this business represents a potential feeder pipeline for product conversions from Rx to OTC. For example, take our topical acne category within the Rx portfolio.

When a category like this begins to switch, we are in a prime position to capitalize on this opportunity. Switch provides a dermatology pipeline and allows us to benefit from two life cycles for a single pharmaceutical product. We also have a strong pipeline in our Rx business.

While these new products tend to be more technically challenging with longer regulatory approval timeframes, they do potentially create a higher barrier to entry, allowing for a longer, more enduring product lifespan. As all of you know, pricing pressures and ultimately deflation have been a major have been a major topic across the industry.

Our Rx team has done a great job over the past years of managing through this. However, we are not immune to this dynamic. And ultimately, increased competition and greater-than-expected price erosion hurt our performance in Q1 and resulted in lowering of our expectations for the year.

Doug Boothe, our EVP and General Manager of the Rx business, has been with Perrigo since 2013, leading the business through exceptional growth. Doug has been in the industry and seen various cycles in the prescription pharmaceutical business, and is the right person to guide the business in this market. Finally, Specialty Sciences and TYSABRI.

From my perspective, TYSABRI is a valuable financial asset, which contributes meaningfully to our financial flexibility and enables us to capitalize on opportunities. Now, I'd like to hand the call over to Judy, but before I do so, I'd like to first congratulate Judy and our company on her newly expanded role announced this morning.

As part of my strategy to take actions that will deliver enhanced value for our company and for our shareholders, you as owners, Judy Brown will take on an expanded role as Executive Vice President, Business Operations and Chief Financial Officer.

In this role, Judy will have leadership of our Global Product Portfolio and Global Shared Service platform, complementing her current responsibilities for corporate development, finance, strategy and communications.

Leveraging her experience in leading multinational, financing and product development organizations, both at Perrigo and at Whirlpool, Judy will now lead the expansion of our existing portfolio and pipeline products across all business segments and geographies, while optimizing our business services. So thank you, Judy.

I will not turn the call over to Judy, Judy Brown..

Thank you very much, John. Good morning, everyone. Before I delve into the financials, though, let me congratulate John on his appointment to CEO. I have worked with John on this executive team for many years. Very many years. But, time flies.

And I agree with Laurie and the board that John is absolutely the right leader for Perrigo at this point in our history. I look forward to supporting his stated focused on execution, growth and transparency in his new role. Congrats..

Thanks, Judy..

So, diving in. You can see on slide nine that GAAP net loss for the quarter was $133.1 million compared to a net loss of $95 million in the prior year. Let me explain the primary differences between our GAAP results and adjusted earnings. Our long-standing philosophy is to adjust GAAP EPS to help you better understand our underlying operations.

These adjustments include such items as acquisition-related matters such as non-cash acquisition-related amortization expenses, restructuring charges and related tax effects, and those items outlined in tables I and II in today's press release.

You will notice that, as described on February 18, we are also removing our vitamins, minerals and supplements operating results from our adjusted earnings in 2016 as the business is currently held for sale. A full reconciliation can be viewed in tables I and II in our press release.

There are two specific large non-cash impairment charges here related to Branded Consumer Healthcare, which I will also talk about in a moment when we get to the segment details.

So, as you can see now on slide 10, Perrigo delivered consolidated first quarter adjusted net sales growth of 33% year-over-year on a constant-currency basis, excluding contributions from the VMS business for both 2016 and 2015.

As noted on our fourth quarter 2015 earnings call, please exclude approximately $40 million of contributions each quarter in your models for 2015 related to this business.

During the first quarter, we experienced a confluence of events, which have impacted quarter results to a magnitude we could not have anticipated at the beginning of the quarter, and which have also impacted our guidance for the full year, as I'll discuss shortly.

Net sales contributions from Branded Consumer Healthcare, which was not part of our business this time last year, was the primary driver of our year-over-year top-line growth. Consolidated new product sales of $74 million, including $31 million in BCH new product sales were partially offset by $39 million of discontinued products.

First quarter consolidated adjusted gross margin was a March quarter record of 47.9%, highlighted by first quarter adjusted gross profit margins in our Consumer Healthcare segment of 33.8%, with first quarter consolidated adjusted operating margin of 25.1%. So, walking through the segments starting with CHC on slide 11.

In the quarter, adjusted net sales excluding VMS grew 2% on a constant-currency basis, driven by continued momentum in store brand infant formula and continued strength in our NRT franchise.

I'm pleased to note that Perrigo-supplied infant formula market share has grown to 13.9% according to IRI data, which is a record for the Consumer Healthcare team.

These gains were partially offset by decreases in the analgesic and cough/cold categories following an extremely mild cough/cold season and the absence of the guaifenesin 600mg ER product as compared to last year. As previously discussed, this is the last quarter where our infant formula label refresh will have a negative year-over-year impact.

This conversion accounted for the majority of the abnormally-high discontinued product number of $32 million embedded in these results. New product sales in the quarter were $31 million. Remember, we anticipated our new product launches in this segment to be weighted more heavily to the second half of the calendar year.

On slide 12, you can see that BCH posted net sales of $318 million, with new products contributing $31 million and our acquired GSK portfolio and Yokebe brand contributing another $37 million to this total.

The BCH segment revenues were organically flat compared to the prior year, with growth in our top 20 brands primarily in the cough/cold and allergy category, despite a soft season in Europe, which was offset by lower OTC sales in certain markets. In the quarter, BCH fell considerably short of our top-line expectations.

Despite soft top-line results as previewed in February, we continued to make significant investments in advertising and promotion in this quarter, equal to approximately 18.6% of net sales. These effects were the primary drivers of adjusted operating income as a percent of sales of only approximately 8%.

The net sales miss in the quarter combined with the change in forecasted net sales and adjusted operating income for the remainder of the year were the basis for the changing guidance for this segment, as well as triggering an initial indicator of impairment.

This started a process to update our long-range segment plans to evaluate asset carrying values.

The change in fair value from previous estimates was due primarily to the changes in the current market and performance of the brands, such as the evaluation of the brand prioritization and product extensions or launches in new regions, are being more focused to maximize the potential of the whole basket of brands in the segment portfolio.

The result, as outlined in our press release this morning, is that we realized a pre-tax non-cash impairment charge of approximately $467 million related to intangible assets acquired in conjunction with the Omega acquisition, $273 million related to indefinite-lived intangible assets and the remaining $194 million related to goodwill.

This is clearly a disappointment, but steps are being taken to correct the underperformance in BCH, including changes in leadership as John has outlined. While many steps have already been taken, it is important to note that it will take time to fully realize the true value of the actions we are taking.

On slide 13, Rx net sales increased 2%, which came in below our expectations. We experienced negative organic growth within the segment resulting from several factors. So, let me explain. The change in the competitive landscape was much more disrupted to our plan than have been anticipated and impacted our overall pricing strategies for the segment.

During the quarter, we experienced 24 competitive launches against our portfolio, producing sharp price erosion in a number of topical products we sell.

These factors, combined with continued pricing pressure due to the consolidation of the large buying cooperative groups and the absence of significant new products in the quarter, further impacted our ability to execute on our planned pricing strategies.

Despite all of this, however, the team was able to maintain its extended topical leadership position in the quarter. These pricing pressures impacted both the adjusted growth and operating margins, accounting for the decline you see here year-over-year.

Turning to slide 14, Specialty Science net sales were $88 million in the quarter, up 9% on a constant-currency basis. Before I turn to the forecast, I'll make a quick comment on the balance sheet. As of April 2, 2016, total cash on the balance sheet was $589 million and total debt was approximately $6.5 billion.

The increase in debt from December 31 reflects the financing of the tretinoin acquisition in January and the subsequent $1.2 billion senior notes issuance we did in early March to term out our short-term debt.

As we've stated in the past, we are fully committed to our investment grade ratings and delevering our balance sheet through EBITDA growth and debt repayment.

Cash flow from operations in the quarter was $170 million, which included onetime unfavorable reduction in accounts payable of an estimated $67 million in Branded Consumer Healthcare related to the normalization of their accounts payable terms.

As a reminder, we intend to fund our previously announced share repurchase program which runs out until late calendar 2018 through operating cash flow. To the extent the use of those cash flows for share repurchases would impede our deleveraging goals or any tuck-in acquisitions, we would slow or suspend the program for a period of time.

Quarterly, given the cash generated and our commitment to delever, we will evaluate cash available for M&A and/or share repos. So, let's move on now to 2016 guidance. On April 25, we provided preliminary guidance without much detail. So, let me walk you through more information by segment on slide 16 starting with CHC.

We expect Consumer Healthcare net sales for 2016 to be approximately $2.65 billion.

The segment has been updated primarily for the exclusion of the guaifenesin 600mg ER product relaunch, delay in new product launches, which include a risk-adjusted launch of the store brand version of FLONASE in the second half of the year, and some adjustments for recent customer negotiations.

While the team continues to work on re-launching the guaifenesin 600mg ER product, we believe it make sense to remove it here from our financial forecast. We anticipate CHC adjusted operating margin to be relatively flat year-over-year. Next, we expect BCH net sales for 2016 to be approximately $1.4 billion.

To help you through your modeling, let me give you some color on our expectations for the adjusted operating margin in the segment. 2015 adjusted operating margin for the segment was 15.8% for the nine months ended December.

Our updated guidance assume that adjusted operating margin will be approximately 200 basis points lower in 2016 due to the many organizational and portfolio changes we have discussed this morning, coupled with continued investment in A&P in our top 20 brands. Rx. We expect Rx net sales for 2016 to be approximately $1.2 billion.

Within Rx, we assume price erosion of approximately 6% for the remainder of the calendar year and now assume the launch of the generic version of ProAir in 2017. Our guidance reflects the expectation that the adjusted operating margin will be in the high 40% ranges for the year.

All of this leads to our updated consolidated guidance perspective on slide 17. We now expect revenue between $5.6 billion and $5.9 billion, which assumes greater than $300 million in new product launches across all segments for the year, adjusted to reflect the new product delays we've already discussed.

Given the new jurisdictional mix of income expected across segments, particularly with the new products slated for launch in the second half of the year, we are updating the full year adjusted effective tax rate guidance to be approximately 15% for 2016.

Given the fact that this quarter's tax rate was 11.4%, you should model a tax rate of approximately 16% to 17% on a quarterly basis for the rest of the year. Summing all of this up to the consolidated P&L, we continue to expect 2016 adjusted earnings per diluted share to be in the range between $8.20 and $8.60.

As previously noted, we continue to expect approximately 55% of our adjusted diluted EPS to materialize in the second half of the calendar year due primarily to timing of expected new product launches. Lastly, a few comments on operating cash flow guidance for the year.

We expect the performance of our business to deliver full year operating cash of approximately $1 billion, which includes the onetime unfavorable $67 million BCH-related normalization effect I mentioned a few moments ago. This represents an operating cash flow conversion approaching 90% to the midpoint of our adjusted net income earnings guidance.

This business model continues to drive strong cash flows and illustrates the ability of our platform to generate quality net income performance. I'll now hand the call back to John..

Thank you very much, Judy. Turning now to slide 19. I want to emphasize what Judy said about our guidance. The guidance range that we put forward on April 25 accurately reflects the perspective of my full management team and our opportunities and on the dynamic space in Perrigo and our industry.

As we stated earlier, we will set and communicate proper targets and work tirelessly to meet or exceed them. I also want to reiterate my leadership principles that I talked about upfront which at the core focused on execution designed to drive shareholder value. First, as I've said earlier, my foremost priority is operational execution.

We have a great business, and operational excellence is the foundation which all of our successes is built. This is who we are. Our platform is designed to add products and technologies that foster our growth. High quality and affordability for our consumer is paramount.

When we add new legs to our stool, like we did with infant nutrition and animal health, we leverage these business models, investing in R&D, talent and infrastructure to further growth. This is why we generate the strong cash flow that Judy emphasized earlier. Second, I'm action-oriented and will deal with challenges and opportunities head-on.

I've made and will continue to make critical decisions to improve certain aspects of our businesses. Third, I'm unequivocally committed to transparency and will be actively engaged with and listening to your questions and comments. That's how I've always worked and that's how I will continue to work.

Fourth and finally, everything I and the management team do is direct to delivering value to Perrigo shareholders, and we will continue to deploy capital prudently and appropriately to that end. I'd like to close by reiterating my confidence in the strength of Perrigo business. We have a solid foundation to build on.

We have an experienced management team. We have a deep pipeline of new products. We continue to refine and improve our operating model across all of our segments of business to drive returns. Our global platform gives us a springboard for growth, and we are all fixated on leveraging our core advantages to deliver shareholder value.

And I would be remiss if I didn't thank our more than 13,000 employees around the world for their hard work in building Perrigo to the business it is today.

We have an exceptional group of professionals working to deliver quality, affordable healthcare products around the world and they are core to our success in the past and in the future, and I'm honored to be part of this outstanding organization. We will now open the call for questions and answers.

I want to remind you that I am joined for Q&A by Perrigo's Chairman, Laurie Brlas and our Executive Vice President, Judy Brown..

Your first question comes from Louise Chen with Guggenheim..

Hi. Thanks for taking my questions. So, first question I had here was just for John and Judy in terms of your philosophy of financial guidance. Has that changed going forward? And if so, how? Secondly, a question that we've gotten pretty often is regarding your debt covenants and coverage ratios. I was wondering if you could address that.

And then last thing, just how we should think about growth in margins for Omega in 2017 and beyond. Thank you..

Great. Thank you very much and appreciate your question. I think I will tackle the guidance question and I'll probably toss the next two to Judy to deal with.

So from a guidance, as I've said, my philosophy is to be very open clear with our guidance, with our expectations, with our growth, and then drive our internal team relentlessly to meet and exceed that guidance. So, very clear on what we're trying to do and where we are trying to set the bar.

Judy, if you want to take the debt covenants and the growth..

Right now, without reconciling EBITDA on the call, suffice it to say, our leverage ratio right now is in the high 3xs.

With the adjustment we just talked about, the guidance, not exactly where we had anticipated to be at this point with the results in Q1 on delevering, but suffice it to say committed still to our pay-down in Q4 and with a strong cash flow and continued growth in EBITDA continuing our deleveraging path.

On the coverage side, we are very solid in our covenant coverage. So, no issue there whatsoever..

Very good. Thank you, Judy..

There was a question on....

The report?.

Yeah, the Omega – the margins for Omega..

All right. I would....

Expectation?.

Branded Consumer Healthcare margin expectations for 2017..

Pardon me. Sorry, I missed the third part. Maybe I'll just make a comment on that. As we stated, we expected operating margin not to see much growth for this year on a year-over-year basis. In fact, given a soft first quarter, mid-teens throughout the rest of this year. And going into next year, we're not giving 2017 specific guidance yet.

But suffice it to say, for your modeling purposes, assuming that same mid-teens would be appropriate at this time as we did our long-range planning that became part of the analysis that was done in the last few weeks that I just mentioned earlier..

Yeah. And I would add to that, we see good strength in the brand, good strength in the markets. We want to continue to invest in our advertising and promotion campaigns to drive those products. And so, we'll do that prudently to manage the bottom line..

Next question, please?.

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

Thank you. First, thanks for being on the call, Laurie. I want to start with you.

Is there anything investors should know about the circumstances around Joe's departure so we don't have to rely on media or speculation? And sorry to look backwards, but can you talk us through how the board handled the Mylan situation and assure investors that all options were fully explored? And then for John, the issues that have weighed on Perrigo in recent times seem to be a blend of expectation setting, execution, as well as strategic decisions that have been made in the past.

So, my question for you is, what changes do you plan to make? It seems like setting expectations at least on paper should be the easiest part of that, but perhaps you can talk about specific changes at the execution model and whether or not you agree with the strategic sort of platform.

It sounds like you believe the platform is intact and correct and it's about execution, but would really like you to express whether you sort of agree with all the pieces at Perrigo and whether they're all core, et cetera. Thanks, guys..

Yeah. Thanks, Gregg. Good question.

Laurie, why don't I have you pick up the first one first related to the board and Joe?.

Sure. Thanks, John. First of all, I'd say Joe made a decision to resign to pursue another opportunity, and you'd have to ask him of why he did that and what his thought process was. But when he made that decision, the board looked forward as we need to do and we felt it was an easy decision.

As I mentioned, we were very clear that John was the right person to elevate to the role. And I know John and Judy can tell you this, it's a very active engaged board that spends a lot of time with them. We spend a lot of time talking about discussions. So, we were very comfortable that John was the right person and moved on from there.

As to the Mylan question, I'll go back to we're pretty active engaged board. We spent a lot of time during the period of time that was an active event. And that time with John, Judy, Joe, all of the advisors evaluating what the different opportunities were that were available to the company and we continue to feel that we made the right decision..

Thanks, Laurie. And Gregg, I'll take the other one as you directed them to me, the other one. First of all, going back to kind of expectations, guidance, et cetera. My philosophy is – again, I'll try to be as transparent as possible.

I want the expectations we lay out to be realistic, numbers we feel we can deliver, and then drive our team to deliver and beat those every day. So, I'll state that and let that stay to that. I think on the execution side, we have a great team. We have a good executional platform.

We're trying to put strong operators in charge of all of the business segments that we have that know how to drive the results of the business all the way through to operating income and after-tax income.

I, as you know, Gregg, am a operator at heart delivering how do we sell, how do we market, how do we add organic products to the truck, how do we continue to deliver more through our BCH platforms. I feel we have great platforms in place. I feel there are things we can do to continue to add products and what I call bolt-on acquisitions.

So, not necessarily transformational but bolt-ons into our current platform. And by doing that with the infrastructure, I feel we have a good growth platform ahead of us. And I think our strategy fits right around those cores.

I think we're currently in great areas to operate, great areas to deliver increased value, getting back to the things that Perrigo does very well..

Thanks..

Thanks, Gregg..

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

Great. Thanks, guys. John, Judy, I was just hoping that you could help us get a better sense of recent changes.

Is it fair to assume that most of these challenges hit between late March and late April? And then just help us better understand what happened over that one-month time period relative to chain of events with respect to Omega and the generics businesses.

Specifically, Judy, maybe you could just comment, how much of the generic impact was competitive entries versus bid cycles? And with the 6% erosion that you've built in, how can you get us comfortable that that's not going to continue, that we now have good visibility into that business? And then the quick follow-up for John, is it fair to assume from your prepared comments that you view TYSABRI as a core asset and there's not going to be review to divest that business? Thanks..

Thank you. Why don't I start out? First of all, on the big picture-wise, when we look at the big segments, Branded Consumer Healthcare, Rx business, et cetera, a lot of those changes, they all kind of came and materialized stronger within the first quarter and many of them more evident towards the end of the first quarter.

So, without giving dates, they all happened at that time period and continued. And as we looked at the year, some of them lingered on and so we changed our guidance based on what we saw there. And I'll let Judy jump in to the chain of events or anything else there that she wants to add, then I'll come back to TYSABRI.

So, Judy, do you have anything?.

So, on the Rx front, specifically you had asked about the evolution there and the update to our forecast. So we saw, I'll call it, some softness starting in January began to accelerate as these competitive launches. I quoted 24 competitors launched against our products in Q1.

And that, in and of itself, changed the pricing dynamic for our team versus their expectations. And so, if you look at the – sorry, to build over the course of the quarter. So, as we look pragmatically at the rest of the year, we had to say what is a reasonable assumption based on the competitive landscape as it faces us right now.

Things I called out, the increased buying pressure across the cooperative large groups, which everyone in the industry is seeing to some extent right now; building that into our expectations; updating our forecast to reflect specific contractual agreements now in place for the rest of the year; evaluating the pricing strategies that we had had in place for the last three quarters of the year and making sure that those are updated to reflect the new reality for the remainder of 2016; and making sure, though, that in our numbers and in our bottom line that we're still making the right investments in R&D.

So not skimping in R&D entirely with this situation in the market, but making sure that we still made that contribution to the long-term growth of the portfolio. So, that's the evolution of the pricing update. We said 6% for the remainder of the year.

I think the team feels that that's a reasonable approach to pricing, where they've evaluated and tried to take in the known knowns as well as a little bit of wiggle room for the unknowns and, going forward, still looking at adjusted operating margin for the segment in the high 40%s, adjusted operating margin for the full year..

Judy, just a quick follow-up. I mean, the gross margin was stronger than I think a lot of people would've expected, including us, just given what you called out as some of the pressures.

Is that realistic going forward to hold at 61%?.

Our expectations for the year and the adjusted operating margin framework I gave you would imply that that's the case because we're still making the R&D investment. So, if you back up, if you work backwards, you would say that that would be a reasonable assumption..

And related to TYSABRI, I'll step back, first of all, and kind of give you the big picture perspective. I think TYSABRI is a great product from a healthcare standpoint, serves a tough disease, a tough population. I think the company that owns it, markets it, sells it, they're a great company. I have high respect for them.

For me and my perspective, it's not a strategic asset for Perrigo. It's not something we're looking to invest a bunch of money in or get into more products related to it. It is a financial asset. It has great cash flow. It has great other benefits around it that enable us to do other things.

I am open every day to different ways of thinking about TYSABRI, other different ways to utilize that financial asset to do other things within our business or for a shareholder base. So, I'm very open, but I view it as a financial asset, not a strategic investment for us..

Great. Thanks, John..

Sure..

Next question. Can we put a limit to questions to the one going forward? Thank you. Now, we have (45:20) one set of question, Brad..

Your next question comes from the line of Elliot Wilbur with Raymond James..

So, now you implement the one-question rule..

Oh, but you always ask the good long ones, Elliot. Go ahead..

Yeah. I've never cheated on airtime, that's for sure. Thanks. And congratulations, John, and congratulations to Judy. And look forward to working with you, John....

Thanks, Elliot..

... in the future.

Judy, part of your prepared commentary, you mentioned something that sort of caught my attention and I want to just ask you to elaborate on it, specifically talking about the Consumer Healthcare Business and some negotiations and concessions with the customer base that, obviously, as I take is you guys giving up something in order to secure shelf space or protect margins.

And I just wanted you to maybe elaborate on that a little bit..

Absolutely. Good catch, Elliot. Well done. We've frequently talked about our overall basket of Consumer Healthcare products being able to maintain stable pricing and that continues to be the case.

But I have always said very clearly that in periods of time when we're not launching big new products, that dynamic becomes more challenging for our Consumer Healthcare team. They do yeoman's job out in the field every day sitting with the buyers at important, large, sophisticated retailers talking about overall pricing.

So we don't have the ability, of course, to set pricing to the consumers on the shelf. That's the determination by the retailers. But we work actively on being effective in our own buying, having an effective supply chain to mitigate any pricing pressure seen for the Consumer Healthcare team.

And of course, when we launch new products, it gives leverage to the entire basket of sales that the team goes out and speaks with the retailers about. So, the phrase used in my prepared remarks is directly linked, of course, to the dynamic of no big, very visible, large products launched this quarter in the OTC basket.

We're going to have some very attractive ones coming up just very soon, but that's part of the yin and yang. And so, as the team sits down, they say very clearly, get me my new product launches because it helps the whole basket of goods have better stickiness long term in pricing..

If I could add one other just – if again stepping back, I think when you look especially at the U.S. consumer business segment, the relationship with our customers, the partnerships that we have with the customers, the frankly mutual importance that we are to each other with our customers is the strength of that core business.

We've worked with them for so many years. A lot of their profitability, their growth, their sales were integrally connected. And so, that bodes well for us continuing a strong relationship there going forward.

Next question?.

Thanks, Elliot..

Thanks..

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

Yes. Thanks very much and I want to also congratulate you both, Laurie and John, on your new roles.

So, Laurie, since we have you on the phone, I was hoping that you could provide some more color on a key question that we've received from investors, given the media stories a month ago on the CEO contract and that question is why did the board release Joe Papa from his contract without greater penalties in the wake of Perrigo's issues over the past year? And then if I could drop one in for John, given your new role, just could you comment briefly on Perrigo's long-term organic revenue growth target of 5% to 10% and whether you expect to update that or how we should think about that at this point? Thank you..

Great. Thanks. I can certainly also start out and then I'll toss over to you, Laurie, on Joe's departure and where we ended up with that. There are rumors out there that we've got rid of his non-compete. Those weren't true. We did not. We actually fine-tuned his non-compete. Valeant and Perrigo do not compete today on products, et cetera.

So, there's very few fringe products. We actually fine-tuned his non-compete agreement, so that it's more aligned with categories within Perrigo that he could not compete in. And so we felt good about that negotiation.

So, other rumors about what Joe got when he left, et cetera, he was basically paid up until his last day of employment and nothing going forward. So, Laurie, I don't know if you have anything to add to that, but I just want to clarify some of those rumors that were wrong out there in the marketplace..

Yeah. Thanks, John. And I really appreciate the question, David, because the board spent quite a bit of time ensuring value for the shareholders and focusing on the non-compete. It was amended; it was not waived. He did not get out of it.

As John said, we felt that we made it absolutely clearer that during in the next 24 months, Joe remains prohibited from really serving as a significant competitor to Perrigo. So, we felt very good about that.

And he did walk away from any of his unvested shares or so forth, so we think that we did the right thing for the shareholders and I really appreciate you asking the question so that we can clear up some of those rumors..

And David, on the long-term plan, what I will do is walk you through the process of how I'm going to kind of work our team through it rather than give you the number today because I'm not prepared to say here's what the next three years, four years look like.

We are getting together here over the next few weeks and next month and then presenting to the board our perspective of our long-range plan, which goes out and looks at that. And I will commit to you and everyone else that in the summer timeframe, we will be coming back to folks with our updated long-range plan and outlook..

Thank you..

Thanks..

Your next question is from David Maris with Wells Fargo..

Hi. A couple of questions.

First, on the capital deployment, do you think that a continued M&A strategy in Europe's compatible with what you say is a principle of returns to shareholders since it appears that return on equity and assets and ROIC have weakened since you started that strategy? And then separately, 24 competitive launches against the topical product line, can you quantify that in dollars? And what's this trend related to? Is this the FDA pushing more approvals? And maybe just any comments on the vulnerability that you might have on that happening with more products going forward..

Yeah. Thanks, David. Let me take some of those, then I may toss over to Judy for a couple of others. First of all, capital deployment and return to shareholders. As I go through again and think about priority, and I lay this out trying to mentally get these clear, I think organic growth, great way to do it, great platform, makes sense.

I believe in Europe, we have a good platform. We're trying to put more operating structure into it, think a little bit about the operating entrepreneurship out of it and bring some structures into it, but it is a good platform. The GSK products that we bought a few months back are performing well in those markets.

The nicotine franchise, we're on the biggest nicotine franchises, nicotine replacement therapy franchise in the U.S. And now having that in Europe, a great natural extension for our core consumer businesses. So, I do believe that adding on core bolt-on acquisitions within the infrastructures can have a good return for shareholder value.

So, I'm a believer in that. And then, ultimately, what else do we do with the cash and the value that we're generating are the other ways of returning that value to shareholders. But I would put them in that order because I think that's a priority that we can deliver value to the group.

Why don't I turn over to Judy on the 24 and the escalation, et cetera, on what we've seen from the approach..

And David, I just called that out. I'm not quantifying the specific dollars versus our expectation in Q1 that the 24 launches had on our bottom line this quarter.

But what I – the reason I did call it out is because compared to probably every other quarter since we've owned Rx, it was an escalation, a rapid escalation of approvals and changing competitive landscape that I just wanted to call out. So, faster than we had anticipated and we have launches coming up in the remainder of the year.

This particular quarter, the dynamics for the competition was different than ours. So, that's the only reason I called it out..

Thank you..

Thanks, Judy.

Next question?.

Your next question comes from David Steinberg with Jefferies..

Yeah, thanks. John, in your prepared remarks, you mentioned you'd put a new leadership team into the Omega business, one that had been very successful with bolt ons. Just curious, how can you get us comfortable that you can do the same with Omega? After all, it's a very large acquisition, over $1 billion in sales versus bolt on.

They have mom and pops in Europe, it's multiple countries, they don't have consolidated chains.

How can you get us comfortable that that integration will go well and that you have a handle on the business? And related to that, during the Mylan saga, apparently STADA had changed their business with Omega and I think Mylan was blamed somehow, but we never got a full answer on what happened with STADA.

And will they come back as they were before? And finally, can you give us an update on the FLONASE launch? Thanks..

Yeah. So, thank you. Thank you, David. Let me try and go in order. First of all, I do, as you said, have great confidence with the team and the initial actions we've taken with the Omega, with Branded Consumer Healthcare, as we call it in Europe.

I won't go back to go through all of Sharon's accolades, but his integrity, his ability to drive performance to the operating line, he's proven himself. So I'm confident in him. I'm confident that we won't need to add more leaders and add more things to drive it, but I think we're off to a great start.

We also added one of our experienced financial leaders to that business about two months ago. He has already begun a much stronger financial planning, financial control acumen to the BCH team, so I feel good about that. Do I think that you can add a brand across every European country just like you do in the U.S.? No.

Each of our brands are more specialized within regions there. It might be the Nordics or it might be down in the Baltic areas, but they're all more regionalized.

I believe that even within those regions, one of the advantages that Omega has in our Branded Consumer Healthcare division is they have the ability to launch products within region segments and make them profitable. So when I say bolt ons, they may not be just one Pan-European brand.

It may be brands that are much more regional where we can add to that infrastructure and growth. So I do have confidence in that. I have confidence in our ability to continue to provide growth under that platform. I think integration, we're going to continue. They have a great sales marketing dry footprint.

The way they worked with each country, whether it's a pharmacy-driven country, whether it's more like the UK, which tends to be more like the U.S. from a retailer distribution. No matter what, they've got a good infrastructure there and they've been able to show strong leadership.

And so I've got a lot of confidence in the business drivers there, et cetera. I think we need the operational backbone, the financial backbone that Perrigo brings to solidify that overall structure. Related to sort of the Mylan-STADA business, STADA is a generic company that we distribute for in Belgium, as you might recall.

During all the Mylan discussions, et cetera, there were some strange relationships there with STADA holding off some distribution, et cetera. We are basically through that. We are continuing to operate with STADA and distribute their products in Belgium.

We are talking with them about what the go-forward relationship might be or might not be, but we still have a time period of a couple of years for that relationship. So that's worked out. As today, we're meeting well with them..

And just the update on FLONASE?.

Oh, FLONASE. So we are still planning on launching FLONASE, awaiting for our final approval and have retailers, et cetera, ready to launch and ready to go. Product is in our docks ready to ship as soon as we get our approval..

Thanks very much..

Your next question comes from Marc Goodman with UBS..

Good morning. You mentioned FLONASE just now. You also had mentioned ProAir. You pushed out the Mucinex 600mg. Is this just being more conservative across the board, or is there some reason you can't launch ProAir now in this calendar year? And Mucinex, I guess I understand you're just being more conservative. Just give us a little more flavor on that.

And then Omega, you mentioned lower lifestyle and natural health, VMS, I guess, products was key in the quarter and for the change of the guidance. Can you just give us a sense of how big these products are? What was the change? Thanks..

Yeah. So first of all, we talked about the new products, FLONASE, ProAir, Mucinex. I don't like to say conservative, I'd rather say realistic. We're trying to put realistic expectations out there. Could some of those still hit in the year? Yes, they would, but they're not planned. FLONASE, we still have in our plan. Mucinex, we moved out.

Are we still aggressively working to get that back to market? We are. ProAir was planned to launch right at the end of the calendar year. And given all the dynamics, we've decided to move it out of the year. Are we still working to try and drive it? We are. It's a delay on when we'd expect it, but we're still trying to drive that to completion.

Related to the Branded Consumer Healthcare and Omega products, the – and Judy, I don't know if you want to talk about that related to the impairment side and the issues related there that we took on those areas..

Certainly. Maybe – let me just give everyone a little bit of color to the extent you had questions on the impairments discussed. The intangible assets that are recorded in the indefinite-lived intangible asset basket that is recorded on our balance sheet is a composition of the branded portfolio of Omega at the time of acquisition.

So within each of the major categories are several brands. As the year has progressed in 2015 and into 2016, we also did additional acquisitions. We did a GSK portfolio.

we launched the Yokebe product line, which has proven to be a very successful lifestyle health product that is performing very well in the portfolio and capturing a lot of market share.

As we moved then strategically as a team, the team's looked at offerings of products and are moving away from XLS, which was in the original acquisition basket and moving towards Yokebe, that triggers the requirement to lower the carrying value of those particular assets on the balance sheet. So one can look at the impairment as a negative.

We are writing down certain assets that were acquired at the time of acquisition. But in the same time, we're also investing in other brands in the portfolio for future growth. So that's part of this composition of John talking – he made several comments about re-analyzing the portfolio, re-prioritizing that portfolio for growth.

Part of that prioritization process, actually, is what triggered the discussion around the impairment. So, it's moving from plan A to plan B in triggering net impairment, that non-cash charge. In looking at the remainder of the year, all of that kind of comes together.

So the guidance was updated to reflect certain changes in that portfolio, some ups, some downs, lowering the overall guidance across certain categories to make some adjustments, primarily with the focus on new products.

So some expectations of timing changes on those and how we reprioritize the top 20 brands are what were the drivers for this year's guidance. And we didn't get specific on which categories got changed in guidance, but suffice it to say, it's really about pulling different levers within the overall top 20 brand basket..

Thanks, Judy..

Next question, please..

Your next question comes from the line of Annabel Samimy with Stifel..

Hi, guys. Thanks for taking my question, and congratulations on your appointments, myself for you. I guess I want to look bigger picture at the generics business. It's always been characterized, given that it's topical, as a higher barrier type of generics composition.

And that doesn't seem to be the case at all this quarter, given you had so many competing products that got approved.

So how should we really think about your generics business from this point forward? Is it going to be – is topicals now becoming a more commoditized business, or is this just a fluke in terms of the backlog the FDA started approving? And do you have the right composition of assets there? And then in terms of Omega, just longer-term it's always been characterized as the 5% to 10% growing business.

And also, the strategic rationale was to really be less of an operating synergy play but more of a revenue synergy play. And so does that still stand? Do you still have a lot of opportunities for revenue synergies in the longer term, two to three years out? Thanks..

Great.

Judy, why don't you lead off on the first question?.

Sure. That was a multi-part question..

But I didn't breathe. I didn't breathe between the questions..

No. No commas. No commas..

So that's a tip for everyone else. If you can manage to go a long way without breathing, you're all set. All right. Let me just start off just briefly. I want to make one point on the Rx front.

Because the Rx quarter performed so much differently than our expectations because of the items I've already mentioned, and we're taking a pragmatic view for the rest of the year, we lowered our guidance. We're calling out the reasons, therefore.

But I just want to point out to everyone, sort of stating the obvious is we saw flow-through in these pricing dynamic at the top line, which rolled through in dollar terms through to the bottom line versus our expectations and the impact of the full year. But please note, the adjusted margins are still very strong.

So the team's still leadership position in this space, the products that we put to market are still secure in relative terms than the average generic. And you can see that through both this quarter, while the quarter, year-over-year is, in fact, down, not arguing that point.

So they're still very attractive operating margins with continued investment in R&D. So I just want to point that part out because it's really about relative dynamics, but still attractive portfolio. And we believe that we've built in an update to the new landscape and still are looking at very attractive margins..

Yeah. Thank you, Judy. And it's similar. I think that the technology, the barriers through all barriers we described to command a good market and what's there. On the Omega front, I would say on the long term, look at the Omega growth.

I'm going to say the same thing I did earlier, which is I want to make sure we get a chance to get our whole team together to look at the long-range plan to review it and consolidate it. We look at it by business segment, but then we look at what other value we can bring to each of those businesses.

And again, my commitment is to come back to you and others in the summer here with our long-range growth plan that relate to Omega. When you think about the synergistic side that we have with the Branded Consumer Healthcare business, they are still there.

The operating side synergies, teams still driving hard to try and deliver, driving those to the bottom line. The revenue synergies in my mind are still there.

They take, and even in our model, longer to get through because you have multiple registrations, multiple – how do you advertise and promote different things, multiple regulations within different countries even in the U.S.

So in my perspective, they are still there from a long-term plan standpoint but just takes longer to get to those ultimate revenue synergies. By putting Judy in her new role, one of her great opportunities will be taking the products that we have in different divisions and figuring out how do we leverage those across our global business portfolio.

So that will be one of Judy's key to-dos beginning tomorrow..

Great, thank you..

Your next question comes from Chris Schott with JPMorgan..

Great. Thanks very much. Just a higher level question.

I guess in light of Joe's departure and the recent performance in the business, and I guess this is for John and Laurie, are you reviewing the overall portfolio? I guess my question here is do you have the right assets in place? And is this maybe a time to look more carefully at the portfolio and perhaps, even more refocus on a core group of assets and divest some franchises? And if I can just sneak in a quick follow-up on just the Rx business, and Judy, sorry to re-ask this, but I'm still just not clear exactly why.

But why isn't the business seeing more margin erosion given the competitive dynamics and pricing? It seems like many of your peers were seeing pricing competition that's translating to very steep margin erosion.

And I'm just – I'm trying to understand why that isn't the case with Perrigo, and then I would think lower prices would drive down margins here. Thanks so much..

Great. Well, let me – Laurie, I'll jump in. And clearly, add something, with Joe's recent departure. I would say the Board and I are very aligned on looking at every aspect of the business and figuring out if there's business segments, product lines, anything that does not fit or there's a different value that we should be looking at.

I'll say it for me and I won't speak for who are in the Board, but there is no – I'm not married to any business segment that isn't delivering its fair share of value. We did that with vitamins. We did it with the India business segment we had that we put up for sale.

We did it with a couple of the brands in Omega that we put for sale because they weren't adding value to portfolio. So I'm very open to looking at that and open to listening to other ways of thinking about it.

Big picture, when I step back, there are certain parts of our business that are very synergistic together, and even though they seem as separate segments, do add value to each other.

And so when we think about standalone or breaking up all the parts, a lot of them do connect very well together to give us ultimately more value than they would separated. But still, very open and interested to thoughts, comments from anyone. And the board is very open to that also.

Laurie, I don't know if you have anything to add to those comments on that..

I don't know that I could a whole lot, John, but I would just echo what you said. The board is very interested in learning about and hearing about different options, and very open to considering all options that will drive shareholder value from that perspective..

Great. So let me jump on the second part of the question and then, Judy, please jump in. If I step back and look at it, we certainly have had pricing dynamics that weren't as expected or weren't as desired, all of those things. When we step back and look at our portfolio of products and mix that we have, it's a pretty profitable mix.

So despite – I know it sounds contradictory, but we've had pricing pressures, price and margin have come down, but when you look at our whole basket of mix within our Rx business, it is still a very profitable mix as you see in the margins..

And we've had the acquisitions completed at the end of 2015 and beginning of 2016, which have contributed attractive margins to the basket as well. So on a year-over-year basis, there are pluses and minuses.

On a quarter-over-quarter basis, there were the pricing pressures that we spent a lot of time on already this morning, offset in large part from the margin perspective with the acquired products. So the basket's still working in the portfolio. On a margin perspective, it's still working well..

Thank you, Judy..

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

Good morning. Thanks for taking my question.

You have a small branded specialty pharma effort going, is it fair to characterize that as being on the back burner now? And is the infant nutrition business meeting your criteria?.

Yeah. So why don't I start from the back first? First, the infant formula business is meeting our criteria. It is growing. If you go back a year or two ago, we converted the whole business to a new marketing presentation, et cetera. Since we have re-launched all of those products, it has done very well. Good movement at retail.

We are very pleased with where it's going and the upside potential of that business. So in my mind, it is meeting our criteria. It's well into our consumer franchise. Related to the small branded, Judy, maybe I'll toss that one back to you on the small other investments we have other than TYSABRI..

Within our branded portfolio?.

Yes..

Branded Rx portfolio? It is a nascent business. Doug Boothe and his team are continuing to look at opportunities to expand their basket of products. Very specialty focused. Not trying to go out to product categories where we have to have thousands of sales folks to cover the United States.

But being very targeted and looking for also additionally, products that would fit into our Durham business where we could have a whole lifecycle management of branded to generics, of course, to our OTC businesses. So still small, but looking for products that can be tucked into that and utilizing the sales forces we have today..

Thank you..

Next question please..

Thank you..

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

Hi, good morning. Thanks for taking the question. So just first, Judy, maybe if you could help us in terms of the sequencing for the Consumer Healthcare business through the rest of the year.

I mean, in terms of the guidance, it seems to be relative – the rest of the quarter seems to be relatively flattish, maybe up a little bit from the first quarter, but should we expect it to be down and then back up in the second half? And then just in terms of ProAir, did you receive a complete response letter, or do you have a target action date from the FDA for that launch?.

Judy, why don't you talk the healthcare?.

Sure. On a relative basis, so as I think about the year in Consumer Healthcare, in some ways it's similar to the way we tried to guide you – I would call it the arc of the year for the full company. The Consumer Healthcare business will have a bigger second half. Their new product launches are concentrated in the back half of the year.

So that means that it's a build over the course of the year. Investments continue over the course of the year. And if you recall, the June quarter for them last year, as well as for Branded Consumer Healthcare, were quite big in the June quarter of 2015. So it was a huge quarter.

So, expect the comps in CHC on a year-over-year basis to be more challenged, again, because of the last year dynamic. New products launch up in the second half, growth continues so that CHC line, to your point, I think you called it out as a dip and then pick back up. And that's a reasonable estimate. And that's why we also made that comment.

CHC is our largest business. We made that comment about expect approximately 55% of EPS to come in the second half of the year..

Related to the ProAir product, we did – basically we got some comments from the FDA. We're working to address all those comments and concerns and get that information back in their hands. And I'll just leave it at that due to confidentiality at this point..

Okay. Thank you very much. That's very helpful..

Thanks..

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

Thank you very much for the opportunity to ask a question. And John, I'm looking forward to meeting you and congratulations on your new opportunity..

Likewise. Thank you..

Judy, if you can just – both of you guys take a step back at the generic drug business because it seems that the companies that got caught off guard on Rx pricing were companies with concentrated portfolios. Certainly, your portfolio is mostly derm products, which has benefited from unusual price inflation.

Typically, generic drugs are deflationary, but you've benefited from inflationary products. I mean, when you take a step back, clearly, the environment's changed. It seems that the FDA is approving more drugs in this space that's creating competition, which is pushing down prices.

And at the same time, consolidated buyers are pressing for a broader depth of portfolio. So it just seems that at the end of the day, the companies that were caught off guard had concentrated portfolios to those that weren't, and who had anticipated a low-to-mid single digit decline in prices have broad global portfolios.

John, your portfolio is highly concentrated all in the U.S. While that has clearly served the company well over the past couple of years, going forward, it does appear that the environment is changing for your type of portfolio.

What do you see as a possible strategic option for this business? Does is still make sense to keep for Perrigo? And is this a one-time re-basing or do we worry about those margins eventually coming back down to where Teva's and Mylan's are? Or how do you think about that business strategically? And then just my follow-up question on TYSABRI.

You talked about that not being core. That's a financial asset. Isn't, though, the longer you wait, the less it's worth just given the competition that's coming next year? Thanks very much..

Wow. That was a lot of them in there. I'll try and – I think I made good notes here, but will do my best to try and do those. Let me start back and comment on our generic business. Kind of go back to the big picture. It definitely is a business focused on extended topicals. So it's not just derm.

It's ophthalmics, it's women's health, but it's extended topical kind of products, those that usually require clinicals, broader types of approvals to get in there. They usually are not billion-dollar blockbusters. They usually are much more the brands. They usually are much more $100 million products, et cetera.

And so you usually don't have 57 competitors going after that like you might with a 800-milligram ibuprofen or something of that nature. So it is still a space. We are a relatively big Rx player. I mean, we're certainly in the top 10, not just within the extended topical, but in general when you look at the U.S. generics space.

I think it hit – as we look back and understand how it hit, there certainly were some approvals, there's some buying power, all of those things that hit us faster than we expected and we had to address. I think the others had been – it hit them earlier because of their broad portfolio.

They had a number of products that certainly were targeted in the initial barrage, if you will. So I do think we're in a unique time.

We have a good product pipeline, and we expect to continue to get those approvals and continue to be able to balance out the ups and downs of our product mix and portfolio given we're going to continue to see constant price pressure on our older products. We've always seen that. It's just that escalated here in the last quarter with the approvals.

So when you look globally, I think it's a great question, one I think we'll contemplate here over the next couple of months as we look through the long-term strategy of our Rx business. We, certainly, as we get to other countries, have Rx businesses. They're not nearly as big. We do an Rx business the in UK. That makes the very specialty prescriptions.

We have some businesses that distribute through Rx in Mexico. So we have parts of our business that our Rx are certainly much smaller than our core U.S. business. And so, we will look at how that fits. Does it fit internationally? Does it fit globally into our structure? Clearly in the U.S., it has a lot of advantages.

Again, our whole infrastructure is geared around both of those and it provides a pipeline for us to continue to feed our OTC marketplace and OTC engine. So all of that, very good. I think the last kind of part of it is TYSABRI. Again, I do see it as a financial asset.

I think we will continue to look at it and figure out what is the best way to utilize that asset. Does it add cash to fund other things? Is it liquidating parts of it to use money to do other things? Well we'll continue to evaluate the best use of that TYSABRI asset..

Thank you..

Thank you. Next question, please..

Your next question comes from the line of Tim Chiang with BTIG..

Hi, thanks. I wanted to just go back to the prescription pharma business. If I look at just sort of the overall market that you're in, in topical, it did look like you suffered from much more price erosion on your base business. It looks like you lost about $50 million in the first quarter or in this quarter on sales.

And then you're still forecasting about what, $1.2 billion of prescription pharma sales which would reflect around about 11%, 12% year-over-year growth.

So could you guys sort of provide a little bit more color on how you get to that figure for the full year? Either that's going to require more acquisitions or you're going to have to have a lot of incremental new prescription products coming online. Any color would be greatly appreciated..

Great. So let me kind of start, first of all, and then I'm going to go back and reiterate. We think it's a great business. We did experience more pricing in Q1 and adjustments there. We do expect about 6% pricing in our model going forward and feel that is the right number.

And we're comfortable with where things are at, but that number at this time makes sense for us. As we look at the overall growth, we've got new products and product mix that are all part of that go-forward projection and lead to that mix of products, that blend of gross margin operating income for that segment.

Judy, I don't know if you have any other perspectives or details to add to that?.

I just want to make sure – just to clarify one point that confuse me. Our number is approximately $1.2 billion in revenue expected in that segment this year includes announced acquisitions, Entocort, tretinoin. It include launches. Like John said, we put ProAir out.

But other product launches, it doesn't have any sort of a gap filler in there for acquisitions or potential tuck-ins over the course of the year. That is the footprint of products that we own today and/or we have on deck the calendar year to launch..

Correct. Thank you for clarifying, Judy..

I guess ....

Thank you..

Okay, thanks..

Thank you.

Next question please?.

Your next question comes from the line of David Buck with Northland Capital..

Hi. This is Mike on for David (01:24:30). Thanks for taking my question. I know you guys talked about a little bit about balancing M&A with other uses of capital. So the recent changes in pricing pressure, does that change how you look at acquisitions across different segments? Thanks..

Yeah. Thanks for the question. So again, I'll step back and say if you look at our business composition, we still remain 70% direct consumer phasing without a pharmacist interface.

So if I look at acquisitions, using M&A and talk about bolt-on acquisitions versus completely transformational-type acquisitions, my belief is they will fit within the categories in that sort of proportion..

Thank you. Next question, please..

Okay. Your last and final question comes from Jon Andersen of William Blair..

Good morning, everybody. And congratulations on the new and enhanced roles..

Thank you, Jon..

Thank you..

I wanted to ask about the CHC business.

And specifically, if you could comment a little bit more on overall market share trends for store brands in your target categories, and whether we're reaching kind of a plateau in the legacy business in terms of overall market share, or whether we should continue to consider kind of a historical trend rate of 50 to 100 basis points of share improvement over time? Thanks..

Yeah. Thank you, Jon. I appreciate the question. As we step back – and the thing that you have in Consumer Healthcare is you do have ebbs and flows. We had -Johnson & Johnson was out in the market with certain products, and they came back. And so you certainly have ebbs and flows that are bigger shifts in the market.

But when I step back big picture wise and say, what's expected, the dynamics in the industry in my mind still remain unchanged. As innovators launch the products, we're in a great position to capitalize on that.

The macroeconomic trends of people getting older, needing more, healthcare costs going up despite our ability or desire to control them more, continue to drive people towards retail brands. And frankly when they try them, they recognize the quality there. And so that's allowed the share to grow.

And my belief is that we'll continue to allow the share to drive upward. I'd hate to speculate right now without, again, going through our long rage plan theme, with exactly what percentages it will go, I foresee continued share growth, again, when you got product-by-product dynamics but continued share growth for our core U.S. or brand market..

Sorry, operator, can we take one more question, please?.

Yes. Your final question comes from Jason Gerberry with Leerink Partners..

Good morning, guys. This is Derek on for Jason. Thanks for taking my question. So maybe first, just kind of on the updated guidance, what does that imply for a new product contribution in 2016? Just trying to get a better understanding across the segments, where the new products are definitely coming from.

And second for John, in the PR, you commented consumer is kind of the core of the business. I mean, how do you believe you can grow that organically and strengthen that core? Thanks..

Great, thank you. Let me start out on the new product side and the guidance there, and I'm just going to toss that to Judy because she has the exact....

Yeah. Official statement made in my prepared remarks is that we had previously said, greater than $400 million, and we have moved that to greater than $300 million. So it's mixed across all three major business units in terms of product timing. So it's a little from CHC, more from BCH and some adjustments to Rx..

On the second part of your question, when you look at Consumer Healthcare and sort of the core, so as I kind of add up all the parts, there is some base growth form our business that continues to allow that Consumer Healthcare business to grow. Switches are certainly game-changing or category changing, depending on which kind of switch it is.

And we continue to see switches as a big part of the growth of that over-the-counter market when you look out over the next few years. And as different categories, I talked about derm or others that switched.

Those open bigger opportunities Going back aways, not to get back too far, but when you look at non-sedating antihistamines, it's probably one of the clear categories you used to either go to the over-the-counter and get something that would put you to sleep when you had your allergies, or you went to a doctor and got a prescription.

Now as those products switched all the over the counter, the amount of opportunity that that has created in the over-the-counter space is great.

So we see that continuing for categories, and frankly, the regulatory agencies and government wanting to try and drive safe healthcare to be more affordable, and to all of those we think work in the favor of that.

Related to additional kind of add-ins, we certainly are a big part of their business, but there are still other segments, other areas that would fit well within our overall system, overall structure, adding more items to a truck that are pharmaceutically oriented that we continue to look at.

And not all of them will make sense for us, but we continue to make sure that we have the sort of optimal portfolio to bring that value to our retailers, and then ultimately to consumers. So I think there is still those left that Jeff and his team are continuing to look at to see how we add those in. Thank you. Thanks, Derek..

Well with that, I thank everyone for joining us to the call. I appreciate your time, and I look forward to meeting you personally here in the next couple of weeks as I get a chance to know and talk with you all personally. Thank you very much..

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect..