Perrigo Company PLC (PRGO) 2003 Q4 法說會逐字稿

Good morning. My name is Latasha (ph) and I will be your conference facilitator today. At this time I would like to welcome everyone to the Perrigo Company fiscal 2003, year ended annual results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer period.

I would now like to turn the call over to Mr. Schrank, CFO. You may begin sir.

Thanks Latasha. Good morning to all. I will start the meeting with the SEC required forward-looking Safe Harbor language and then turn the meeting over to Dave Gibbons. These conferences include our views of where the business is going. We will make forward-looking statements we believe to be reasonable but can give no assurance that those statements will prove to be correct. We have prepared a detailed discussion of the many factors we believe may have a material effect on our business on an ongoing baseness and have included that discussion on pages 23 to 27 on our Form 10-K for the year ended June 29, 2002.

Additionally, at certain times we will use non-GAAP financial measures that we believe better describe the ongoing financial results and trends of the business. The required reconciliation of these measures to GAAP measures is included in our press release which has been filed on a form 8-K that may be accessed through our website at www.Perrigo.com.

With these formalities out of the way, I will now turn the call over to Dave Gibbons, Perrigo's Chairman and CEO.

Thanks Doug and good morning, everybody. I'm delighted to report the excellent results for Perrigo's fiscal fourth-quarter and for the full year ending June 28, 2003. In our discussion this morning I will first provide an overview of the fourth-quarter and the year end results then Doug will review the financials in detail. I will discuss the fiscal 2004 outlet after that for both our core OTC pharmaceutical business as well as our nutritional business and I will review the strategic logic behind our R&D investment for long-term growth.

Sales in the fourth quarter of $182.6 million were up slightly from a year ago. The bright spot in June was the first shipments of the loratadine-D 24, equivalent of the Claritin-D 24 Hour product. Net income for the quarter was $4.3 million or 6 cents a share compared to breakeven last year when if you remember, we restructured our Mexican operations. Income on an operating basis last year excluding onetime items was $3.6 million or five cents per share. For the full-year, sales were essentially flat with the prior year of $826 million. Earnings however, were up more than 20 percent. Net income was $54 million or 76 cents a share up from $44.8 million or 60 cents per share last year.

In fiscal 2003, we realized the benefit of the investments made in quality processes and manufacturing operations over the past two years. Maintaining our focus on quality customer service and operational excellence and good execution of those initiatives have been instrumental in the improved gross profits and net earnings. We continued to be a really strong cash generator in 2003. We had $80 million in cash flow from operations.

This enabled us to repurchase 3.3 million shares and to begin paying our first cash dividend. In summary, I couldn't be happier with the results. We are especially proud that our financial discipline, expense control, quality focus, and operational efficiency have helped us to achieve record earnings per share in fiscal 2003.

And now, I would like to have Doug take a look at the numbers in more detail.

Thanks Dave. My comments this morning will focus on the fourth quarter and the twelve-month results on an operating basis. For the sake of comparability I will use last year's results, excluding the vitamin litigation settlement and the Mexican restructuring, and the vitamin litigation settlement in the first quarter of fiscal 2003. First let me look at the fourth quarter. Sales for the quarter of 182.6 million were essentially flat compared with sales of 182 million a year ago. The store brand health care segment sales of 165 million were down about 1 percent compared with 166 million last year.

Within this segment we recorded quarterly gains in our cough, cold, laxative, antacids and feminine hygiene categories and experienced declines in sales of analgesics and vitamins. Double-digit increases in sales in Mexico in Wrafton combined for an increase of 13 percent in our all other operating segment. Now to the IRI point-of-sale data this quarter for sales dollars which indicate the following and I would remind you that these amounts do not include Wal-Mart which makes up more than 25 percent of our business, the IRI data does not include Wal-Mart.

The cough cold market was up more than 30 percent in the quarter, store brand was up 22 percent, and Perrigo was up more than 30 percent. We benefited from the late cough cold flu season as retailers restocked their shelves and we had good customer service. We also saw year-over-year benefit from loratadine which began shipping in June, so we saw some benefit to a varying degree. The analgesics market was down 1 percent, store brand was flat, and Perrigo was down 7 percent.

The category was weak overall especially in aspirin and acetaminophen and there were no significant new products to drive growth. Perrigo was likely impacted by lower gel (ph) coat product volume. In the gastrointestinal category the market was down 2 percent, store brand was up 6 percent and Perrigo was up 2 percent, experienced increases in both the antacid and laxative segments of the GI category. The vitamin market was up 5 percent, store brand was up 3 percent and Perrigo was down 20 percent. Perrigo was down for a couple of reasons.

Number one, a single customer whose volume was down due to a number of store closings in recent, in the recent year. In addition, we had a customer, a very key customer, that drew down inventory in the quarter, and we also lost some business at extremely low price points. The IRI trends in the fourth-quarter typically show Perrigo trailing the market and the store brand trends. This is largely due to the comparison between movement at point-of-sale compared to our shipments into the channel. You remember that in quarter one, as retailers begin building inventory of seasonal items, our trends typically exceed the point-of-sale trends. Looking at gross profit for the quarter. Gross profit was 45.2 million, a slight decline from 46.1 million last year and was 24.8 percent of net sales compared to 25.3 percent on the same basis last year.

Operating expenses in total decreased 4 percent in the quarter before the Mexican restructuring and the litigation settlement last year. As a percent of sales operating expenses were 21.2 percent versus 22 percent in the same period last year. The effective tax rate for the quarter was 34.1 percent and net income was 4.3 million in the quarter compared with net income of 3.7 million last year. Excluding the 3.8 million after-tax impact of the litigation settlement and the Mexican restructuring included in last year's results, diluted earnings per share of 6 cents compared with 5 cents last year on an operating basis. Let me move to the annual results.

For the twelve-months ended June 28, 2003, sales were 826 million, flat compared with last year. The store brand health care segment declined 2 percent from $761 million to $749 million. Sales declined approximately 12 million resulting from lower sales in analgesics, antacids, vitamin and contract manufactured products offset by sales of new cough, cold and feminine hygiene products. During the year we discontinued sales of a number of low margin, low volume products and had reduced gel cap sales. The sales volume decline was partially offset by a favorable mix of products sold and improved net realized pricing.

Sales of the all other segment, Quifa and Wrafton, increased 19 percent or $12 million due to increased volume at both businesses over the past year. Now let's look at the category trends for the 52-week period ending June 15, 2003. Again, this IRI point-of-sale data excludes Wal-Mart. The cough cold market for 52 weeks was up 10 percent, store brand was up 7 percent and Perrigo was up 11 percent. The growth in the category is driven by new NBE products, specifically loratadine. You remember that the cough cold season this year was the third continued -- or the third weak season in a row.

The analgesics market was down 1 percent, store brand was flat, and Perrigo was down 4 percent. There was no significant new national brand or store brand products in this category and Perrigo was likely negatively impacted by the gel coat business. The gastrointestinal market was flat, store brand was down 6 percent -- or was up 6 percent, and Perrigo was down three percent. Antacids were weaker than last year due to increased store brand competition in acid blocker antacids.

The vitamin market was up 4 percent, store brand was up 5 percent and Perrigo was down 4 percent. The market was up year-over-year for the fourth consecutive quarter and is now up year-over-year, for Perrigo for the second half of 2003 was tough with store closings at a large retailer and inventory drawn down on a key account. Gross profit for the year of $230 million was an increase of 12 million or 6 percent. As a percentage of sales, this was 27.8 percent compared with 26.3 percent last year. That's an increase of 150 basis points and obviously is a drop-through to the bottom line.

Approximately two-thirds of the increase in gross profit percentage was due to improved operating efficiency, and one-third was due to favorable mix of products sold and improved net realized pricing. The major difference in operating expenses year-over-year were, R&D was 23.3 million, compared with 25.7 million last year due to timing of projects and lower patent litigation costs this year. Selling and administrative expenses including stock option expense, increased 5 million or 5 percent in the twelve-months reflecting higher product liability and D&O insurance costs. The effective tax rate was 37.3 percent for the year. GAAP net income for the twelve-months was 54 million, compared with 44.8 million last year and earnings per share were 76 cents fully diluted compared with 60 cents last year.

On an operating basis, excluding the vitamin litigation income in both years, and the Mexico restructuring last year earnings per share improved from 58 cents to 73 cents per share, or up 26 percent. In summary, sales were flat and EPS was up 26 percent. Operationally, it was a very good year. Let me move to the balance sheet. We finished the year with 94 million of cash, up from 77 million last year and despite stock buyback outflow and cash dividend payments totaling $37 million.

Working capital, excluding cash at year-end, was $119 million versus 110 million last year. Controllable working capital, inventory accounts receivable and accounts payable as a percent of sales was 14.1 percent using a twelve-month rolling average. Accounts Receivable were 87 million compared with 83 million a year ago and DSO was 42 days compared to 41 days last year and receivables were up due to the June launch of loratadine-D 24.

Inventories were 160 million, up about three percent from 156 million a year ago. The increase is due to increases in work in process and mainly raw materials for new products and for new foreign raw material suppliers. Finished goods were down $3 million and we feel really good about inventory today. It's balanced correctly at a fairly low level but high enough to maintain very high customer service levels. Cash flow from operations for the year was 80 million versus 104 million last year.

Remember last year included about $18 million resulting from the vitamin litigation settlement. Strong and predictable cash flow makes our investment for future growth possible, such as the generic RX opportunity that Dave will address in his comments to follow. Capital expenditures for the year were 32 million and we anticipate spending 25 to 28 million in fiscal 2004. The start of a number of key capital projects in 2003 contributed to the gross margin increase.

In summary, we are pleased with our twelve-month results and our strong financial position. The strength of our core store brand business and solid financial position provides an excellent footing for our new growth initiative which Dave will described.

Now let me turn it back to Dave.

Thanks, Doug. Last quarter we talked about the very hard work going on at Perrigo to improve our business fundamentals, work that is not flashy, not sexy but has really been effective in improving Perrigo's earnings. Looking back a year, going into 2003, we set out to continue to make progress on three tough priorities, and we did make progress. First, in quality and compliance, this has been an ongoing focus.

As I said before the road to quality never really ends. We have accomplished a large part of the computer and systems validations that we needed to complete. And we have cGMP processes really becoming firmly in place as we build a very solid pharmaceutical culture here in our Perrigo operations.

Secondly, customer service. We raised the bar again in 2003 going from 90 percent customer service levels prior year to 93 percent in 2003, a record level for Perrigo. And third, very important to us as a store brand supplier, our initiatives to drive down cost. These have been similar to our quality initiatives. They have required some investment but we are now beginning at least to realize payback from some of the things we talked to you in the past about.

The SKU reduction of more than 15 percent took place last year, the establishment of higher minimum run sizes, the packaging automation that we are putting into place, the new material handling equipment for faster throughput and to provide better customer service, and finally, a broad range of initiatives in global procurement designed to bring our cost of raw materials down. The execution of these priorities and related initiatives have contributed to the maintenance of a very healthy core OTC pharmaceutical and nutritional business and the outlook remains good. For 2004, we see an opportunity for top line growth. We expect 3 to 5 percent revenue growth resulting in 8 to 10 percent earnings growth in our core. And we also see strong continuing cash flow in our store brand business.

So as we go into 2004, with a firm pharmaceutical foundation, we have the quality R&D and manufacturing processes in place to expand our pharmaceutical business. We see generic prescription drugs as a logical extension of our existing OTC pharmaceutical base. And we plan to invest an additional $5 to $7 million in R&D in 2004 primarily for the development of generic drug products. Why are we moving into generic RX now? It's something we have talked about internally for a number of years.

If you look at the fundamentals of the market, the generic drug market is large and growing. Today it's $15 billion with a 14 percent per year growth rate and generic drug margins are better than our store brand OTC margins. There is a host of other reasons when we look in the way that this initiative will complement and really enhance our position in the OTC business. First of all, Perrigo has access to about 70 percent of the generic market through our current food, drug, mass and wholesaler channels. We have the expertise because we go through the same development filing and approval processes in our OTC to RX switch programs as we will be doing as we go into generic.

We can carry that R&D leverage in to generic RX and OTC switches as more and more products go either way and you don't know until you get closer to the end of the patent period whether they're going to go RX or are they going to go OTC. We will be positioned to go either way. There are good initial opportunities for Perrigo as well in dual listed drugs. Drugs like ibuprofen, where at higher dosages they are still prescription. And acid utilization, we can maximize our return on assets, we have the manufacturing capability and the available capacity all with appropriate cGMP manufacturing and cGMP packaging. So as we enter the generic RX market, our objective is to build a product line and we are starting from scratch, and to put together a future pipeline of products as soon as possible and we will utilize several paths to do that.

We will use internal R&D to drive initial opportunities, some of those would be in the dual listed drugs I spoke about earlier. We will also be exploring distribution agreements, could be with branded or generic companies, development agreements for things that contract R&D. We could look at purchasing ANDA's and formulations and use technology transfers to bring them here to Perrigo. And of course, we will also look at acquisitions but as those of you who know the generic market lately, know some of those valuations are currently running pretty high.

It makes it a little bit more difficult for a company of Perrigo's size to make those types of acquisitions we would look for but we will be open-minded about that. When we look at our organization we are very pleased that in John Hendrickson and Mark Olesnavage we have talented experienced executives to lead and grow Perrigo into the future. John has been with us for over 15 years. He has led our drive for customer service and operational excellence over these past three years. Mark has been a leader in the company with 22 years covering sales, marketing, business development and scientific affairs. He has been instrumental in bringing to market numerous high impact ANDA products and he has represented Perrigo on the Generic Pharmaceutical Industry Association Board for the past ten years.

In summary, today we've got a very strong store brand business that provides the cash for investments to further our future growth. We've developed the pharmaceutical culture with assets that can be leveraged. The entry into the generic RX market is not only timely given the well-recognized role of generic drugs in battling rising health-care costs, but it's also really a natural extension of our business.

We are ready. We will still be primarily a store brand, consumer focused company, but our organization is energized and excited about the chance to take the opportunity, to take on this opportunity, for future growth. Thanks all of you. Thanks to all of Perrigo's folks. We've had a good year again.

We are now open to take your questions.

Chuck Cerankosky with McDonald Investments.

Good morning, everyone. Great year. I want to ask the first question about the loratadine market. How do you see that shaping up from where you sit right now especially in terms of pace of shelf prices falling to the consumer and can you give us some outlook on when you expect some of the additional dosage forms to start coming through the Perrigo system?

I think we previously have said that we see the loratadine over-the-counter market to be somewhere in the $500 million range in the first year. We still think it's on track to that. The products that are out there have done pretty well so far. It could be a little higher than 500 million in the first year. But we do know that prices are falling and will continue to fall as additional players come out with products. So we still feel pretty good that that $500 million roughly for the first year will be appropriate. But certainly as time goes on, as we have indicated before, we absolutely do feel that prices will be falling further. Now your second part of your question was about other dosage forms for Perrigo?

Yes.

As you know we've got the D 24 that is out there. It is doing very well for us. The other big item that is out there that we don't have yet is the 10 mg, that makes up about half of the total market. As you know we have taken a path of a 505 B2 filing for an NDA. That pathway is still a possibility but the timing is not certain at this point.

I would think that on the 10 mg we will probably be out there sometime in the second quarter or at the latest, around the beginning of the third quarter. The other dosage forms, the D 12, would be the third quarter of fiscal 2004. Same with the orally disintegrating tablets, they would be around the same time, the ready tabs, and the syrup, I would think possibly by the end of the year we would have that product out.

Could you repeat what you said was the size of the generic pharmaceutical market, Dave? And then it doesn't read to me at least clearly in the press release, about your outlook for 2004. Are you saying that you're looking for 8 to 10 percent earnings growth before the increased investment in R&D or afterwards?

We're looking for that eight to ten percent growth in our core prior to the $5 to $7 million investment in the generic area. That's why we also stated that we see that the net income will rise less than that eight to ten percent because of that $5 to $7 million investment.

Okay. What is the size of the generic pharmaceutical market?

The market today is about $15 billion. It is growing at about 14 percent a year. When we look at different scenarios, what different people, analysts, etc. are projecting out for the generic market, I really don't see anybody projecting that growth slowing to anything less than about 10 percent. By the year 2010, this already large $15 billion market will probably be somewhere up around a $35 billion market. Also, keep in mind, margins in generic pharmaceuticals are higher than the margins that we currently have in our store brand business.

We look at 28 percent margins and we're pleased with the progress we've made to get up near that 28 percent level. In generics the margins are considerably higher than that and I think we have an opportunity to compete very effectively without compromising our margins and in fact enhancing our margins. Even though they might not necessarily even be all the way up with where some of the specialty generic pharma people are, they certainly will be higher than where the store brand over-the-counter margins are.

Dave explain, and I'm assuming this is a positive, explain how the development of a generic pharmaceutical product by Perrigo would facilitate getting the store brand version of that product to the consumer quicker if it is indeed a switchable drug?

I think you'd see us -- we would have an increased R&D effort with this additional money. We would -- just as when Claritin came over-the-counter, a lot of the people that had the first filings on Claritin were generic drug manufacturers because they had been investing in developing the product thinking that it was going to go generic first.

With Perrigo, we would be looking to be first to file, and we would be prepared to take advantage of it whether it went over-the-counter or whether it went generic when it came off patent from the branded prescription player, from the patent holder. I also think that the terrific record we have in customer service and the retailer relationships that we have will come to play in allowing us to be an even stronger player in the combined markets than we are in either markets separately.

Thank you.

Thanks Chuck.

Derek Leckow of Barrington Research.

Congratulations everyone. I just had a question here on the vitamin part of your business, nutritional supplements were done here in the quarter quite substantially. I wonder if you had seen a reduction on that downward trend here in this first quarter and whether you see that changing in the near-term or is that an ongoing process?

I certainly would not expect continuing 20 percent declines, that was somewhat unique to the quarter and while it is certainly a tough business and there's a lot of pressure on both sales and margins, we certainly don't expect that that decline is the start of the trend, no.

So it's basically already kind of -- has it turned? Have you seen an improvement here so far this quarter?

The trend certainly is not what it was in the fourth quarter, right. We could always have sales in nutrition better for us, but we do not have anything that we see as a continuing downward trend anywhere near the scope of what you saw in the fourth quarter.

So the biggest issue there was the inventory reduction on the part of that one customer that you mentioned?

And the store closings from another -- it was both that and the store closings from another major customer, it would have been really a large purchaser of our vitamin and nutrition products. Those two aspects were behind it, and in fact, as we look in 2004 we just finished our national sales meeting. We've got an awful lot of enthusiasm on the part of the sales force as we are introducing the Starch Blocker products and some of the other new initiatives we have. I came away feeling very, very good about what we're doing in the nutrition area in fiscal 2004, Derek.

I just had a question on the seasonality of your business. Maybe you could help us with some of the quarterly breakouts here for revenue for 2004. It sounds like you are going to be getting a lift in the latter half of the year from loratadine and I wondered if you could help us with how that seasonality would look compared to 2003?

We obviously -- we don't give out quarter sort of breakouts, but as you look at it with the loratadine products and some of the other new products that will ramp up later in the year than earlier in the year the seasonality will skew a little bit more to the second half than you saw it in fiscal 2003. How it goes will really depend upon what truly happens to the cough cold flu season, and where it peaks in the second or third quarter and how that peak is. That is the other thing that is almost impossible to predict. If that market were the same as last year, we would see a little bit of shifting into the last half.

What kind of gross margin opportunity do you see? I think that we talked about this before that the opportunity is not as great as it was. What kind of opportunity do you see there in the next year?

As I look at it, when you look at the absolutely spectacular results, 150 basis points really driven by productivity and all of the things that Dave talked about, as we look out you are going to see a much slower growth in margin and actually when you look at how we are running the business, our emphasis will shift a little bit from gross margin down to operating margin as we really go after some business that we think should be ours a little bit more aggressively because we now know that we are much closer to low-cost producer out there than we ever had been before. We are going to shift that 50 basis points from the margin line to the operating income line and we've got very clear goals to have that improve.

As far as the generic prescription business is concerned, obviously you are starting that from scratch here and I don't think your guidance contains anything in terms of revenue for 2004, does it?

No, absolutely not. That is strictly an investment year.

But that could lead to some upside here in terms of -- you mentioned perhaps doing some joint ventures or some other arrangements with some partners that could lead to some upside to that in the current year don't you think?

Certainly it could as you look to the latter half maybe, but I honestly from this point in time, Derek, I don't see this as leaning. I would not count on any 2004 revenues coming from the generic initiative. But as you do point out, it is early in the cycle here. We have a lot of things we are looking at, a lot of things we are exploring and it is just impossible to say where this will lead us. There's a lot of energy and enthusiasm. It has been very interesting as we roll this out to our own folks how solidly the support is and the belief in this is as a great vehicle for Perrigo growth.

One final question on that part of your business there, is there any capital investment contemplated right now or do you have capacity right now to add additional business here without much capital investment?

As we look at it now we don't need any capital investment at this point in time. We have the capacity, it's the same kind of equipment. As we go along maybe there will be some modest capital but to be honest, other than some capital in the R&D area we do not right now see any problem at all. One of the issues in the industry, in the generic pharmaceutical industry, is lack of capacity. They are hitting manufacturing constraints. We have that capacity, so I think we have an advantage over some of the players out there in terms of the capacity that we do have available.

That flows pretty directly out of the margin improvements that we have had over the last two to three years. That four, five hundred basis points has really come because of productivity. And what happens as productivity improves we've actually, we get better margins but at the same time we end up with more capacity, so we're right at a stage now in our core business where we have more capacity than we like and it will very nicely flow into the generic RX kind of product.

Great, let me stop there. Thanks again and congratulations.

Linda Bolton of Fahnestock.

Thank you. How you guys doing? Good year. I have a couple of questions about your plans to get into generic RX. It looks like with the increased investment in R&D for next year it's going to take your R&D ratio, spending ratio up about one percentage point. Can you just maybe give us a sense for what that ratio is like for generic RX companies and then how you plan over the long-term to get that ratio? Is it going to be similar to those companies or is it going to be lower?

It varies when you look at what generic companies spent. I think when we are, when we are fully ramped up, we will be committing to R&D at a fairly comparable level, perhaps somewhat less than some of the ones that are trying to move more into the specialty pharma area and particularly as you get into the generic biologics.

Okay. So I guess I'm just thinking are we actually looking at maybe a couple of years here of flattish earnings for you guys as you invest in this long-term strategy?

It's hard to say right now because we don't know what distribution arrangements we might be able to make, what other agreements we might be able to pursue. Certainly, if we are to be going on just an internal development type of process, it would be a couple of years of investment before the payback comes. But if you notice what happens with other -- and we certainly have noticed as look for acquisition opportunities, once the products start to come to market, once the filings are made and you start to bring a pipeline to market the evaluations of some of these smaller generic companies has exploded even with very little sales results because the pipeline becomes very critical.

And what we're committed to is doing the work necessary to bring a strong pipeline to this market place and to tap into the other advantages we have that allow us to bring those products to market very competitively and to take advantage of the retailer relationships that we have.

I know in the OTC round, you have not been that open about discussing your pipeline of things that are filed. I know that generic RX companies do discuss their pipelines often. Are you going to be discussing your pipeline with us?

We are certainly a ways away from having to make that decision, Linda. But in terms of the way we would handle the generics, as we go along into generics and have things coming along and we are making filings, I think we would probably be behaving in that part of our business much the same as our generic pharmaceutical competitors do.

When do you think you will have your first filing in the generic RX area?

Hard to say. I would rather not comment on that today. We will certainly keep you apprised as we get to where we are ready to make a filing.

Okay. And just shifting a little bit toward the near-term earnings. It seems like you have a pretty, it's like a hard comparison on the growth margin line in the first quarter coming up because I think you had a real low inventory obsolescence charge in the gross margin last year -- in the first quarter '03. Is it possible that EPS could be done in the first quarter of '04?

First of all, Linda, we don't comment on the quarterlies. But there is no question that that charge last year was usual coming off of the year end. We really ramped down our obsolescence early in the year versus the previous year. So that makes the comp a little bit more difficult in that first quarter.

You had mentioned that pricing was favorable impact on the growth margin in FY '03. Are you assuming any positive pricing in FY '04?

No, we again don't into detail on pricing. But I think it will be probably turn to a negative in 2004 as we get aggressive. Now that we've got the operational efficiencies in place, we have reduced some of the nonperforming SKUs, I think pricing we would anticipate would be a negative this year. However, I would say, and I don't mean to interrupt again but to follow up on what Doug said, we still see the opportunity for continuing gross margin improvement despite being more aggressive in pricing. And that's because we still see a lot of operational efficiency and productivity improvements out there for us with the different initiatives we have underway.

Okay. Finally, I think you had talked at one point about potential annual sales of about 35 million related to all of the Claritin -- loratadine products. Is that still a number that seems reasonable? And I realize all of that will not fall in FY '04 because of the timing but would maybe 20 million or half of it? I mean that would be the amount?

I think you are right in the ballpark, Linda, somewhere in between those two members. You are right, long-term we certainly would hope even with pricing falling that that first number was out there. And in terms of what we will achieve in FY '04, I'm hoping that we will be somewhere between your two numbers would be where we may very well end up. But it's really hard to say at this point in time because we've only got one product out there.

How much did it contribute in the fourth quarter, was it material to EPS?

No, it was not. It was nice to have in June and filling in the initial pipeline, but it was not material.

Thank you very much, guys.

Chuck Cerankosky of McDonald Investments.

Doug, this is probably a question for you. In looking at Perrigo's entry into the generic pharmaceutical business, what do you see that doing to working capital investments, CAPEX and ROA?

Let me just take all three of them. First of all, as I said earlier, we have the capacity and really the brick and mortar to move into generics and a fair bit of capacity that we can use to that end. So as it relates to brick and mortar, there is very little. As it relates to working capital, working capital is basically a factor of sales. And as sales grow, as I said earlier, our working capital is about -- our core working capital is about 14 percent of sales. So as sales go up there will be a little working capital use, but in this business and in the generic business that cash flow comes back so quickly that you're paying for itself fairly rapidly.

So the overall metrics I believe for Perrigo will stay just about the same. Of course, when we did all of the, what can use our cash for, generics just automatically and almost any other screen that we looked at, generics comes up as the number one alternative almost all the time. So it's a great way to use our cash and really leverage returns for shareholders over the long-term.

Thanks, Doug.

At this time there are no questions. Are there any closing remarks?

No. Thank you all. We are real pleased with the work that Perrigo did in fiscal '03. We thank all of you for your participation in this call.

This concludes today's Perrigo conference call. You may now disconnect.