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Mylan N.V.  (NASDAQ:MYL)
Q3 2018 Earnings Conference Call
Nov. 05, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Mylan Third Quarter 2018 Financial Results. (Operator Instructions)

Now, it's my pleasure to turn the call to Melissa Trombetta, Head of Global Investor Relations. You may begin.

Melissa Trombetta -- Head of Global Investor Relations

Thank you, Carmen. Good evening, everyone, welcome to Mylan's third quarter 2018 earnings conference call. Joining me for today's call are Mylan's Chief Executive Officer, Heather Bresch; President, Rajiv Malik; Chief Commercial Officer, Tony Mauro; and Chief Financial Officer, Ken Parks. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2018. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.

Please refer to the earnings release we furnished to the SEC on Form 8-K earlier today as well as our supplemental earnings slides, all of which are posted on our website at investor.mylan.com for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. Mylan routinely posts information that may be important to investors on this website, and we use this website address as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC's Regulation Fair Disclosure.

In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of our financial performance. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available in our third quarter earnings release and supplemental earnings slides as well as on our website.

Let me also remind you that the information discussed during this call except for the participants' questions is the property of Mylan and cannot be recorded or rebroadcast without Mylan's express written permission. An archived copy of today's call will be available on our website and will remain available for a limited time.

With that, I'd like to turn the call over to Heather.

Heather M. Bresch -- Chief Executive Officer

Thank you, Melissa. Good afternoon and thank you for joining today's call. Well, we are continuing to see the global healthcare environment evolve at a rapid pace. Mylan's third quarter performance was in line with our expectations and we delivered solid year-over-year growth. However, in the market search for stability, analyzing certain indicators in isolation can exacerbate volatility.

We'll discuss our perspective related to several examples of these during today's call, whether that be Mylan's pending generic Advair approval, utilization of biosimilars and complex generics or the over-emphasis of the impact of commoditized oral solid dose products within our North American business. Our ability to deliver long-term growth is not dependent upon the timing of any one approval, any one countries market dynamics or any one dosage form, but rather the broader more complete context of Mylan's global diversified business model. More than 7,500 products around the world divided almost equally between generic and brand sales.

Market leadership in countries throughout our geographies and a scientific platform that has generated a record number of complex generics and biosimilar launches for Mylan year-to-date. We continue to believe Mylan is built to last. With all this said, we remain committed to our full year 2018 guidance provided in August and this confirmation is not dependent on any single product approval or launch.

In North America, while our business is predominantly generic, we are benefiting from a broad mix of dosage forms well beyond oral solids and are seeing continued stabilization of the pricing environment. Year-to-date, we have launched nearly 40 new products in North America with two-thirds of these being injectables.

In Europe, our business benefits from an equal mix of branded generic and over-the-counter products. Year-to-date we have launched nearly 300 products across all of these channel. Our commercial infrastructure in Europe allows us to maximize key launches such as our insulin analog, and the first wave of our biosimilar to HUMIRA across countries in this region.

And our Rest of World segment, Mylan's smallest but fastest growing region, we've seen consistent double-digit growth for the year with more than a 130 new product launches year-to-date. We also continue to benefit from organic and inorganic new product opportunities in this region including Sebivo (ph) and TOBI. These results are made possible thanks to the successful integration of our differentiated global platform, which allows this management team to be 100% focused on executing and maximizing the organic shareholder value contribution of all of our global asset. We are now positioned to explore opportunities to drive capital market disciplines down into every segment of our business, distinguishing between value creating and value consuming growth and then focusing our strategies and investments on driving economically profitable growth.

As we look ahead, we are very optimistic about our long-term growth prospects. We have secured almost all regulatory approvals necessary for our key 2019 product drivers around the world. But given the reality of today's operating environment, we know that's not enough, we still have the important work of ensuring our products get pulled through the system and into the patients hands who need them. Perseverance and adaptability are prevailing and we continue to see utilization uptick with our Glatiramer Acetate, our HIV portfolio and our biosimilar to Neulasta as prime examples.

Our employees are critical to this effort. Each of them contribute to our mission to provide the world's 7 billion people access to medicine and I'd like to thank them for their hard work and continued dedication to Mylan.

With that, I'll turn the call over to Rajiv to provide you with some greater detail on developments from this quarter.

Rajiv Malik -- President

Thank you, Heather. Let me start by celebrating the product contribution impact of our Morgantown facility, restructuring and remediation, which began in the second quarter of this year on our North American business as this may have been misunderstood by the investment community. Our US business is much more than commoditized oral solid doses and consists of a broad portfolio of injectables, gums (ph) semi-solids, in addition to hard to mix oral solids.

Currently, only one of our top 10 and 8 of our top 50 gross margin generating products for North America are manufactured in Morgantown. It should be noted that we did not expect to have any significant new product launches from the site in 2019. As we work to reduce the complexity of this facility, we have proactively discontinued a number of products, while also transferring some to other sites.

These actions have led to a temporary disruption in supply of certain products for our customers and reduced volume in North America generics sales. However, the value related to the rationalize product is not proportionate to the reduced volumes of those commoditized product. While we are executing on our commitment to FDA, the plant continues to supply products for the US market. Our remediation and restructuring activities will continue in the near term. We understand that this current and temporary situation puts a burden on our customers and appreciate their ongoing confidence in Mylan based on our outstanding historical track record.

As one of world's largest pharmaceutical market, the US remains a key market for Mylan a key market for Mylan. We will continue to focus on providing a broad range of products, including industry-leading new launches and maintaining a meaningful market share across a diversified portfolio. No matter where our products are produced in our network, our goal is to ensure the highest quality and service levels to our customer and optimal volume value mix.

As Heather mentioned, over the past 12 months, we have had a record-breaking year of scientific accomplishments representing a significant milestone in the company's nearly 60-year history and validating our spend in managing and executing on complex product approval.

This is a culmination of years long scientific investments and endeavors to bring complex generics and biosimilars to the market. Our team managing the science and working closely with our partner have consistently delivered remarkable results and we are looking forward to continuing this momentum as we close out 2018 anticipating approval for generic Advair, Wixela and (inaudible).

Mylan will continue to differentiate itself by leveraging its science platform and adding more complex products to our portfolio over the long term. Regarding Wixela, we are in the continuous and ongoing discussions with FDA regarding the progress of the review. Based on our latest updates from agency, they are in the final stage of labeling review. We continue to believe that FDA will be able to resolve any outstanding issues very soon. Now I'd like to take opportunity to elaborate on the previously disclosed acquisition of worldwide rights to cystic fibrosis products TOBI Podhale and TOBI Solution from Novartis.

This is a meaningful and strategic addition to our respiratory platform in USA and a very complementary and durable addition to our Creon Franchise in Europe, Australia, Japan and Canada and also broadens our portfolio of dry powder inhaler and nebulized products. Such bolt-on acquisitions must first and foremost be strategically aligned to boost our franchise as well as deliver on our financial metrics such as EPS accretion and ROIC. This asset acquisition is not only strategic, but just all of financial metric softness.

Before I turn it over to Ken, I would like to express my appreciation to our employees around the world for their hard work, dedications and many contributions. Thank you.

Ken Parks -- Chief Financial Officer

Thanks, Rajiv and good afternoon everyone. I'll take a few minutes to provide a quick overview of our financial results for the third quarter. Total revenues of $2.9 billion were 4% lower than the prior year or 2% lower excluding the negative impact of foreign exchange. On a constant currency basis, Europe, which was up 2% and Rest of World, which was up 11% helped to mitigate a 13% decline in North America. The decrease in North America net sales was primarily driven by lower volumes on existing products including EpiPen partially offset by new product sales including the recent launch of Fulphila. The decline in volumes was primarily driven by the timing of purchases of our products by customers and actions associated with the restructuring and remediation program at our Morgantown manufacturing facility. In addition, North America net sales were negatively impacted by approximately $50 million related to the implementation of the new revenue recognition accounting standard at the beginning of 2018.

North America net sales excluding the $50 million impact were down 9% versus the prior year. Adjusted net earnings increased 10% to $648 million and adjusted diluted EPS increased 14% to $1.25 during the quarter. That includes benefits from ongoing integration activities and a lower share count following the completion of our $1 billion share repurchase program in the beginning of the year.

Moving to segment profitability, excluding approximately $98 million of expenses related to the Morgantown restructuring and remediation program, North America adjusted segment profitability declined 6%, which is less than the rate of the sales decline and primarily due to the impact of new product launches and favorable product mix.

Europe's profitability grew 7% during the quarter, mostly driven by new product sales and favorable product mix also. Rest of World profitability expanded 45%, mostly driven by new product sales including those in our ARB franchise, Australia and China. Both Europe and Rest of World continued to benefit from our ongoing Mylan integration activities as we execute on our plans to further optimize our cost structure.

Adjusted free cash flow for the nine months ended September 30, 2018 totaled $2 billion, an increase of 6% compared to the prior year, reflecting favorable working capital performance and lower capital expenditures. Year-to-date, adjusted free cash flow conversion was healthy at approximately 119% of adjusted net earnings, another measure of the strength and durability of the cash flow generating capabilities of our business.

At the end of Q3, 2018, we reduced our debt to adjusted EBITDA leverage ratio to 3.8 times. As anticipated, our capital deployment priority is focused on deleveraging in the second half of 2018 and we expect this to continue into 2019. We intend to repay at least $1.2 billion of debt maturing through the end of 2019, including EUR500 million maturing later this year and the balance maturing next year.

Our solid free cash flow generation could allow us to repay additional debt in 2019 and will provide an update of our complete 2019 debt repayment and leverage targets when we provide our 2019 outlook. We remain fully committed to our investment grade credit rating and to further reducing leverage as we work toward our long-term average debt to adjusted EBITDA leverage ratio target of approximately 3.0 times. Finally, as you heard earlier, we are reaffirming our full-year 2018 guidance. We expect total revenue to be in the range of $11.25 billion to $12.25 billion, which is roughly flat at the midpoint versus 2017.

We also expect adjusted EPS to be in the range of $4.55 to $4.90 per share, which represents an increase of 4% at the midpoint when compared to the prior year. For cash flow, we continue to expect to generate between $2.1 billion to $2.5 billion of adjusted free cash flow, which is consistent with our initial guidance for 2018. As we discussed over the last few quarters, we're continuing to evaluate metrics, other than EPS that better reflects how we manage and measure the performance of the business.

We expect to utilize those metrics as we provide guidance externally on the outlook for the business and will provide more detail when we more detail when we update you on the 2019 outlook call early next year.

With that, we'll now open up the call for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Elliot Wilbur with Raymond James. Your line is open.

Elliot Wilbur -- Raymond James -- Analyst

Thank you and good afternoon. Specifically, wanted to get a little bit more color and insight into some of the segment profitability metrics, I guess specifically North America and Europe, both were very strong despite some constraints on the topline. In fact I think they're close to record levels. since you began the new segments disclosure reporting a couple of years ago, wouldn't have expected that North America kind of given the absence of EpiPen contribution and not really show what kind of drove the strong year-over-year and sequential profitability trends in Europe as well. So maybe just a little bit more insight into those dynamics would be helpful. Thanks.

Ken Parks -- Chief Financial Officer

Okay, Elliot. Thank you for the question. You're exactly right. I mean, this was a strong profitability growth quarter not just for Europe and for North America, but also for the rest of world. And as we talked about in the comments as I talked about specifically in the comments and you can see when you look at our press release, our gross margin ratio increased from a little more than 52% on an adjusted basis last year in the third quarter to more than 55% this year called out basically the two drivers in both places.

Number one, both places being North America and Europe. Number one, our product launches, new product launches and we've talked about that as we move through the year, we specifically said that new product launches in Europe will be more heavily weighted to the second half of the year and we saw both in Europe and North America. Exactly the expectations that we had moving into the quarter. Those new product launches tend to run at profitability level slightly higher than the overall Mylan average. So that was a positive contributor in both North America and Europe regions.

Secondly, I would call out for Europe specifically, we've talked about as we come into 2018. The focus and investment into our global key brands, some of those global key brands are other than the legacy Mylan business, some of them are out of the EPD business we acquired a couple of years ago and some of those come out of the Meda business that we acquired in 2016.

We called it out because we said as we move into 2018, we were going to continue to reap the benefits from our Mylan integration activities and be able to reduce our overall G&A cost and at the same time take that money and invest it back into selling and marketing to support those global key brands that are very sensitive to advertising promotion and selling efforts in the countries across Europe specifically and that's exactly what we've done this year.

We had the savings from G&A, and we've had the discipline and focus and leadership and teams to support these global key brands and not just one market, but multiple markets. So that should give you a little bit more color, it's really around product launches. You heard scientific capabilities and that's turning into revenues and profits and then the focus on our global key brands.

Operator

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

Ronny Gal -- Bernstein -- Analyst

Good afternoon. Congratulations for a very nice quarter. I want to touch on two things, if I can. First I noticed the UNH(ph)contracts were your preferred brand for their plans. It's a nice execution during the commercial marketing side. Any chance you can let know what roughly the pricing is for this product versus its list price or some other medical(ph)whether this is more of a generic level pricing or more of a branded level pricing. And similarly, with most of the European adalimumab contract already in, can you give us a fair and assessment of where your volume will stand your volume share will stand in 2019 in Europe?

Ken Parks -- Chief Financial Officer

Yes, Ronny. Thanks for the question. First on the UNH I think thank you for recognizing this. It is a great opportunity we think this partnership we have with United really provides enormous amount of access and affordability to this marketplace and we think this is unique contracting opportunity really will drive opportunity, not just in 2018 but in 2019 as well. And as it relates to Hulio our Humira product in Europe. It's just beginning. We're seeing tenders as you've noted, across many of the European markets like the Netherlands, Norway and Denmark certainly we feel like there is a huge tremendous opportunity within Europe, not just in the tender markets it's been the markets where you will have physician substitution. So we're excited about the beginning of the launch, a winning a few tenders in select markets and really expanding on that going forward into 2019.

Operator

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

Chris Schott -- JPMorgan -- Analyst

Great. Thank you very much for the question. The first one that was on Morgantown, any additional color you can provide in terms of the impact, the remediation is having on both your top and bottom line adjusted results as well as any more granularity on when in '19, we can expect operations to be in to normalize that facility. And just a quick second one was just an update on the strategic review, any timelines when we could think about an update here and directionally, any color in terms of what the committee is spending its time evaluating? Thank you.

Rajiv Malik -- President

Thanks, Chris. I'll take Morgantown and Heather will comment on the second part. Chris as you will anticipate when we have taken, undertaken the remediation and restructuring because we mentioned in our quarter two calls that just to manage to keep pace with FDA's evolving standards. We need to rationalize and simplify the plant and reduce the complexity. So we had undertaken certain discontinuation of commodity products as well as moving these products within our network to some other sites. So I think if we separate qualitative and quantitative, it's more a qualitative issue for us because it has set out from the customer service level point of view. Our reputation that's where I think we feel the more pain rather than the quantitative one because what -- where we have lots of those is mostly on the commodity products with -- yes, you see a couple of billion doses going down. But they are as we mentioned, disproportionately, they're not from the value point of view there. So as we go in 2019, you will see us restructuring in Morgantown that's number one. But basically balancing the network, so that we can optimal deliver the meaningful market share, the value and the volume mix. So that's where we are heading.

Heather M. Bresch -- Chief Executive Officer

And Chris as far as the strategic review, as we just announced it last quarter. I can assure you, the Board is busy looking at lots of things, as we've talked about unlocking that value and I think that when they're ready for an update, we certainly will put that out that we've put no time frames around that.

Operator

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

Liav Abraham -- Citi -- Analyst

Good evening. A couple of quick questions. Firstly, can you just provide a little bit more granular details on the Fulphila launch and how that's progressing? And then secondly, Ken in the past you've provided us with a breakdown of revenue for new products in the quarter, broken down into US and Rest of World. Could you provide that for this quarter as well? Thank you.

Ken Parks -- Chief Financial Officer

Yes, thank you. On Fulphila. Maybe just to give you kind of what's been our approach, when we talk about this surgical launch really have been focusing on our community oncology clinics as well as hospital based outpatient clinics. So as we continue to watch weekly, we see our weekly movement into these clinics are going to 700 or 800 units a week here and we see that continuing to grow.

Last week, the loan we're little over 8% of the pre-filled syringe market, which makes up almost 50% of the entire Neulasta marketplace. So we are very happy. We're very happy where we're at today and where we continue to see our trends grow and continuing to build upon that oncology practice experience and really building our relationships with the GPOs and the IBMs in terms of how we can look at long-term value, continuing to grow and capture share and this is very large US marketplace.

Chris Schott -- JPMorgan -- Analyst

And we have -- o for the quarter, we had slightly under $300 million of new product launch revenues, which I would say about half of that came out of North America overall. And the remainder of it was split between Europe our API and ARB business, and then the remainder was in just kind of the Rest of World segments. So that would be kind of the highest level breakdown of where that's coming from.

Operator

Thank you. Our next question comes from Gary Nachman with BMO Capital Markets. Your line is open.

Gary Nachman -- BMO Capital Markets -- Analyst

Hi, good afternoon. With generic Copaxone you've been taking more share in the last couple of months. So what types of formulary wins have you been getting and how much additional price that you have to give up to get that share and if generic Advair is approved soon. What do you expect market formation to look like at this point? Thank you.

Tony Mauro -- Chief Commercial Officer

Maybe just to hit upon our Copaxone. What I will say is, we had said in the last quarter and in the previous quarter. We weren't happy where our market share was, we've been continuing to focus on this with pharmacies with PDMs and with payers. And you're right over the last quarter, we've seen sequential 25% gain in market share of 5% total market share gain, Q2 to Q3. One point Q3 new scripts were hitting the 30% level for the first time. So we're very excited. We're going, but we're not finished we've got more to do and more to work with as it relates to that.

Gary Nachman -- BMO Capital Markets -- Analyst

And as it relates to Advair?

Heather M. Bresch -- Chief Executive Officer

Yeah, I would just add, as it relates to Advair. I mean, whenever the market does form. We believe it's going to be an important product for a long period of time. As you know, a very high barrier to entry very complicated product. We look forward to bringing it to the market, but believe that you know, as we've continued to learn about and as the continued dynamics evolve with how to pull product through, I can assure you we will be launching in a smart as we can to ensure that we're able to get it into the patients hands. So we look forward to the launch as soon as it can happen.

Operator

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

Umer Raffat -- Evercore -- Analyst

Hi. Thanks so much for taking my question. First on EpiPen, my question is your filings say no more than 3% of any product is no more than 3% of your revenues are any single product. So that would imply EpiPen and its authorized generic being something like 350 million, but we are seeing Pfizer report 174 million in first nine months alone or 230 million run rate, so that Pfizer run rate doesn't quite reconciled with EpiPen and its AGB being 350, is it fair to say EpiPen 350 and the AG's another 200. And then Ken for your debt paydown schedule, are you assuming any significant change in your working capital or any new securitizations?

Ken Parks -- Chief Financial Officer

So I -- Umer, number one, your statement, the reiteration of our statement around no product accounting for more than 3% of total revenues is absolutely correct. And so the math would get you exactly where you laid out for us. I can't speak to what Pfizer has out there, but I can tell you exactly what we know which are the numbers we manage and the sales that we account for and your first statement is exactly that on and consistent with our earlier statements.

On the debt pay down what I would tell you is we have -- we have shown over the last couple of years consistent improvement in working capital velocity. A couple of days per quarter and the year-over-year comparison of improvement in working capital days on hand, which is exactly what we're driving toward as we move through the balance of this year and into 2019. And we're going to have a lot of opportunities to take a look at where that working capital velocity will come from. We've talked in some of the settings, including in our Investor Day earlier this year. How we got Europe combined all on a single ERP system instance and in doing so that gives us, ability to reach out and look at receivables from one spot instead of 35, we'll get payables from one spot instead of 35 and we've built in and are doing specific activities to drive those days and the directions that they need to be moved to.

So your question around debt paydown as number one, we certainly have the debt repayments outlined that are coming due and this year and next year and I will tell you that, we also expect to continue to drive working capital velocity improvements, not just in the balance of 2018. But through 2019 and I would even suggest going forward when you put numbers around that every day at working capital for Mylan accounts for about $40 million of cash flow. So the continuation of working capital velocity is high on all of our list and specifically mine.

Operator

Thank you. Our next question comes from Tim Chiang with BTIG. Your line is open.

Timothy Chiang -- BTIG -- Analyst

Hi, thanks. I noticed that you guys highlighted our gross margin improvement this quarter 55% approximately. This is the number that you think it can be repeated in future quarters and also you're benefiting from lower SG&A spending and also lower R&D spending, is that also something that's going to continue?

Ken Parks -- Chief Financial Officer

On gross margin, what I would tell you is, we watch every quarter as it occurs. We certainly had a a period as I outlined $300 million or so of new product launches you hear Rajiv, Heather and Tony all talking about the pipeline and we're investing those products that are more complex, those that bring more value, not only to us, but to the patient. And in doing so those tend to be slightly higher profitable products, the timing of new product launches could drive a quarterly movement and what gross profit looks like, but what I would tell you over time is this pipeline that this team has built over multiple years is set to deliver gross product, gross margins at nice rates over the long term. But I won't call out any quarter alone.

Secondly, your question around SG&A, I go back to say the statements earlier around the SG&A, which is we continue to look at these assets that we brought together through acquisitions, we find opportunities to continue to improve the G&A part of that SG&A and still invest in the selling side of that equation. So we have opportunity, when you say as a sustainable. Yes, we continue to find opportunities to do things in our, "back office, more streamlined, more improved which just gives us more dollars to drop through either to the bottom line or to invest where we need to grow products. And then I'll let Rajiv comment on the R&D question.

Rajiv Malik -- President

Our commitment on R&D is very well highlighted and illustrated, as we mentioned in Heather remarks as well as in my remarks, so R&D spend is a timing issue and not a trend.

Operator

Thank you. Our next question comes from Irina Koffler with Mizuho. Your line is open.

Irina R. Koffler -- Mizuho Securities -- Analyst

Hi, thank you for taking the question, as you're labeling discussions on Wixela proceed, can you reassure us that it's still a substitutable product that we're talking about and your confidence level around that. Thank you.

Heather M. Bresch -- Chief Executive Officer

No, absolutely, we can reassure you, that it's a substitutable product and we are very optimistic and we believe FDA needs to do what they need to do. And with respect the same but at the same time, we have been very confident about the positive outcome at earliest.

Operator

Thank you. Our next question is from Louise Chen with Cantor Fitzgerald. Your line is open.

Louise Chen -- Cantor Fitzgerald -- Analyst

Hi. This is Jennifer Kim on for Louise. Thanks for taking my questions. I just had two quick ones. First, I think you mentioned that there was a volume decline for EpiPen this quarter. It is the timing of purchases and I'm wondering, then would you anticipate the volumes to sort of operate themselves in the fourth quarter and then the second question is with the recent approval of a second biosimilar for Neulasta, how does that affect your thinking about the market? Thanks.

Heather M. Bresch -- Chief Executive Officer

Maybe if I hit on EpiPen very quickly. What I would say is traditionally Q3 for us is the highest volume quarter, just due to the seasonality of the products. So what I would say is, I think Q4 will rebalance itself out to roughly 20% of the annual volumes, as we've seen in traditional years of path. As it relates to another Neulasta product like I said, this is a $4 billion product in oncology. The largest biologic product available in the oncology, a therapeutic world. And right now, we're tracking a little bit above 8% in the pre-post syringe(ph). So I think there is opportunity for more. I think there's a great opportunity for Mylan and I think we'll continue to see our product grow and we'll stay very surgical on track with our plan as we're very happy with the results and very happy with where it's going.

Operator

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

Jason Gerberry -- Bank of America. -- Analyst

Hey, good evening. Thanks for taking my questions. Just a question on biosimilar Lantus. I'm just curious, is this some product you guys think is one that you can get an acceptable gross profit margin on. And I asked in lieu of Merck's decision to walk away from this citing profitability metrics and I know they are about a year ahead of you guys, so just kind of curious if you can help us think about that one. Thanks.

Rajiv Malik -- President

I will take it then, Tony, please feel free to ask. But we believe Lantus is a very important product, and we remain confident, first of all in science in fact, we are -- we continue to work with the FDA to find a substitutable product. At the same time, we believe there is a market and there is a need and we remain very confident from our costing point of view, from the backward integration, which we have done with our partner, Biocon that we will be able to have a positive gross margin, when we come to the launch of this very important product.

Tony Mauro -- Chief Commercial Officer

And maybe just to add as Rajiv said this diabetes franchise is one that continues to grow globally and I think each market will be -- each market will have its own sets of opportunities and we'll be very focused on the markets we concentrate to grow and ensure our market share is valuable and bring access that is important patient community.

Operator

Thank you. Our next question is from Ami Fadia with Leerink. Your line is open.

Ami Fadia -- Leerink. -- Analyst

Hi, good afternoon. I've got two questions, firstly on Fulphila, could you give us a sense of your capacity with regards to supplying to demand in the market. And secondly on Advair when it gets approved, what type of a ramp, are you anticipating, would you expect a relatively slow ramp kind of like the way we've seen but Copaxone or would you anticipate a more typical generic ramp. Thank you.

Rajiv Malik -- President

So Ami, regarding Fulphila, I think we -- our capacity is exactly as we had plan and as we had anticipated this launch, so we don't see any capacity constraints from our modelling perspective.

Melissa Trombetta -- Head of Global Investor Relations

And as far as Advair, I mean, here's what I would say, Amy. As we've talked about these complex products being pulled through the chain and I tried to reiterate this in my opening commentary that it's not just good enough to get a product approval, the regulatory burden. But also our work about pulling it through, and I can assure you that we are absolutely doing our part as we look at how this is going to be positioned with our end goal being that it reaches the patients hands, who need them and brings that access and affordability to this marketplace. So as once we do get the product launch, we will obviously stay close and report back, I think that we've taken very appropriate and conservative assumptions. And I think it'll be something that's got a very long tail to the longevity and contribution from this product.

Operator

Thank you. Our next question is from David Risinger with Morgan Stanley. Your line is open.

Unidentified Participant -- -- Analyst

Hi, there. Christian(ph)here for David Risinger. Could you please provide more color on the new financial metrics that you're considering to focus The Street on?

Heather M. Bresch -- Chief Executive Officer

Yeah, sure. Look, I think we've been continuing to indicate that we don't believe that the EPS in the short-term is kind of around that projection is the right indicator for what's really fueling our long-term viability, our performance over the long term and really quite honestly, where we're focused as a management team. So these are things we're looking at a lot of things and obviously when we come back with 2019 outlook, we certainly will share them with you as well as our rationale.

Tony Mauro -- Chief Commercial Officer

And the only thing I would -- and I completely agree with everything Heather just said, and I would just say consider how you see our financial results come out, which are that EPS is certainly a number of that certain people like to take a look at and we certainly want to make sure and drive that to be as optimal as we can. But what I would also tell you is what we really also want to do is make sure and not just focus on EPS in a quarter, but consistent solid cash flow generation and conversion of EBITDA and net income into cash.

So we can continue to delever, continue to invest in our business and continue to build that pipeline. So you'll see us looking at things around what's driving value into the business from an economic perspective and what's driving cash into the -- out of the business and then back into the business to make sure that we are keeping our balance sheet healthy and our company strong and ready to deliver on the business plans that we have set for ourselves not just for the next quarter or the next year, but the next few years. So as I said, we'll give you more color around those specifics as we continue to look at it, when we get in front of you in late February timeframe with our outlook for 2019.

Operator

And ladies and gentlemen, this concludes our Q&A and program for today. Thank you for participating. This concludes it and you may all disconnect.

Duration: 42 minutes

Call participants:

Melissa Trombetta -- Head of Global Investor Relations

Heather M. Bresch -- Chief Executive Officer

Rajiv Malik -- President

Ken Parks -- Chief Financial Officer

Elliot Wilbur -- Raymond James -- Analyst

Ronny Gal -- Bernstein -- Analyst

Chris Schott -- JPMorgan -- Analyst

Liav Abraham -- Citi -- Analyst

Gary Nachman -- BMO Capital Markets -- Analyst

Tony Mauro -- Chief Commercial Officer

Umer Raffat -- Evercore -- Analyst

Timothy Chiang -- BTIG -- Analyst

Irina R. Koffler -- Mizuho Securities -- Analyst

Louise Chen -- Cantor Fitzgerald -- Analyst

Jason Gerberry -- Bank of America. -- Analyst

Ami Fadia -- Leerink. -- Analyst

Unidentified Participant -- -- Analyst

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