Perrigo Company PLC (PRGO) 2008 Q2 法說會逐字稿

Good morning. My name is Nelson and I will be your conference operator today. At this time I would like to welcome everyone to Perrigo's second quarter earnings conference call. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Art Shannon, Vice President of Investor Relations. Sir, you may begin your conference.

Welcome to Perrigo's second quarter 2008 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 press release is available on our website at www.Perrigo.com.

Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call. Certain statements in this call are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and are subject to the Safe Harbor created thereby. Please see the cautionary note regarding forward-looking statements on page 1 of the Company's Form 10-K for the year ended June 30, 2007. I would now like to turn the call over to Perrigo's Chairman and CEO, Joe Papa.

Welcome everyone to Perrigo's fiscal 2008 second quarter earnings conference call. Joining me today on the earnings conference call is Judy Brown, Executive Vice President and Chief Financial Officer.

For our agenda today first I will provide a brief perspective and discuss a few highlights from the quarter. Next, Judy will walk through the detailed financials and talk about our outlook for the year. And then I will discuss our opportunities for omeprazole, cetirizine, and provide an update on our OTC business. This will be followed with an opportunity for question and answer.

Let's get started. Once again, all our segments performed very well on high revenue volumes. We had record sales, with double-digit sales growth at each of our business segments, plus record operating income, up 85% from last year on a 390 basis point improvement in gross margins. These improvements, along with continued focus on working capital, generated $67 million in cash flow from operations, up $43 million from last year. Judy will discuss our new cash flow expectations for the year shortly. This is another very strong sign of the strength of our core business.

Our Consumer Healthcare unit had more than $20 million in new business sales as a result of ongoing quality problems at an OTC competitor this quarter. This keeps us on track to meet our previously stated target of $90 million to $100 million in annual sales as our team continues to meet our customer needs.

Perrigo is also gaining market share in the vitamin business. As we have told you repeatedly since our competitor's quality problems began, we're looking at these sales as part of our business, and are working very hard to keep these sales in the future, no matter who was in the marketplace.

Many of you have asked us about the cold/cough season. While the overall cold/cough market is down 4% from last year, I am delighted to share with you that Perrigo's OTC cough and cold category is up 11% over the same period a year ago.

Within the cold/cough category our combined pseudoephedrine phenylephrine product sales were up more than 20% versus last year, reversing a three-year trend.

We have also been busy exploring international store brand opportunities, and we closed the acquisition in January of a privately held Galpharm Healthcare, the leading supplier of over-the-counter store brand pharmaceutical products sold by supermarkets, drugstores and pharmacies in the UK. Galpharm strengthens our footprint for future expansion into Western Europe.

This acquisition is expected to add more than $55 million in sales annually and be accretive to earnings in the first year. This type of acquisition is similar to the Glades acquisition in our Rx business. These ROIC-driven acquisitions add to our productlines and utilize our existing customer relationships to expand the breadth of product offering for our customers.

The Rx business continues to benefit from the Glades acquisitions. Sales in the Glades products was up 37% in the quarter over last year. The API business also experienced strong growth with sales up 21% over last year. I'm sure we will have plenty of questions surrounding the omeprazole and cetirizine opportunity, so I will get into the detail in that shortly, but first let me turn the call over to Judy for more a detailed financial review of the quarter.

I am delighted to have this opportunity to share our second quarter results with you this morning. The financials really do speak for themselves. The team has continued its focus on realizing significant revenue growth, while at the same time executing against operational improvement objectives and investing in future growth.

As we continue to be optimistic about prospects for the balance of the year, we're updating our earnings guidance for the full year as well. I will walk you through those assumptions in a few minutes after explaining our second quarter and year-to-date results in a bit more detail.

Consolidated second quarter sales were an all-time record for Perrigo at $435 million, an increase of $65 million, or 17%, from last year, characterized by double-digit sales growth in each of our operating segments. Consolidated gross profit of $130 million was an increase of $34 million from last year, while gross margin was 29.9% of sales, up 390 basis point when compared with last year's 26%.

Consolidated second quarter net income benefited from the strong volume and was $34 million, compared with reported second quarter net income of $21 million last year, which included costs for a product recall of approximately $3 million after-tax. The second quarter of last year also included a small restructuring charge for the closing of two Consumer Healthcare manufacturing facilities. After-tax this charge was $417,000, or less than $0.01 per share.

Second quarter diluted earnings were $0.36 this year compared with $0.23 last year, and included expense of $0.03 per share for the product recall.

Now to provide some color to the results I just outlined, I will take you through a review and discussion of our business segments, beginning with Consumer Healthcare. Consumer Healthcare sales increased $44 million or 16% to $320 million, coming from growth of $37 million domestically and $7 million internationally. New product sales, mainly in smoking cessation, cough/cold and nutrition, contributed $10 million of this increase in the quarter. As Joe just mentioned, we have continued servicing our customers during the ongoing absence of a key competitor in the marketplace. This led to more than $20 million of growth this quarter as well.

Offsetting the strong domestic Consumer Healthcare sales gain was the impact of our proactive exit from the fiber laxative and effervescent cough cold productlines, which had sales last year of $8 million.

Our international operations in the UK and Mexico also performed well in the quarter, growing 17% year-over-year through both new product and increased unit volume. Additionally, the impact of a favorable foreign exchange rate contributed 7 percentage points of this growth.

As Joe noted a few moments ago, on January 9 we announced the acquisition of Galpharm Healthcare Ltd., a leading UK-based supplier of OTC store brand products to the UK market, for approximately $86 million in cash. As this transaction occurred after the end of the second quarter, we will include the results of operations and opening balance sheet of Galpharm for the first time in the third quarter of fiscal 2008.

This quarter Consumer Healthcare's gross profit increased $27 million or 45% from last year's $86 million. The gross profit margin was 26.9% of sales, a 540 basis point improvement from last year's 21.5%. The margin increase was driven by the favorable contribution of the new products in the portfolio and production efficiencies on much higher volumes through the plant. Also in the second quarter of last year gross margins were negatively impacted by approximately $5 million of product recall expenses.

Operating expenses increased $6 million or 14%, due largely to higher wages and benefits. As a percent of sales operating expenses in the quarter were 14.9%, down from 15.2% year ago.

Consumer Healthcare reported operating income of $39 million for the quarter, or 12% of sales. This compares with $17 million or 6% of sales last year.

The Rx Pharmaceuticals segment continues to perform well this quarter, growing both organically and inorganically. Net sales for the second quarter of $39 million were a 37% increase from $28 million last year. This improvement included a $7 million contribution from the products acquired from Glades Pharmaceuticals, as well as increased volumes of existing products.

Gross profit increased 56% to $18 million or 46% of sales, due to increased unit volume and favorable product mix. Pricing pressure on existing products partially offset the favorability of new products and the addition of Glades to the portfolio. It should be noted that in the second quarter last year we recorded a $5 million charge related to the accruals for customer programs, which included estimates for rebates and chargebacks.

Operating expenses were up $2 million, but were down 300 basis points as a percent of sales when compared to last year. Operating income was $8 million compared with $4 million last year.

The API business showed strong revenue growth again this quarter posting net sales of $35 million, up $6 million or 21% from the second quarter last year. New product sales of $3 million, as well as higher volumes on many existing products, drove this improvement. Gross profit, however, was down 3% in the quarter to $12 million. Despite higher sales volumes versus the second quarter last year, an unfavorable year-over-year product mix and higher unabsorbed production costs during the quarter caused a decrease in the overall gross profit realized.

Operating expenses were $8 million, up $2 million from a year ago due to an increase in research and development spending, a withholding tax assessment, and other employee-related costs. Operating income was $3 million, down from $6 million last year.

In the other category, which is our Israel-based Consumer Products and Pharmaceutical and Diagnostic product business, net sales were $42 million, up $4 million or 11% compared with $38 million last year. The impact of a favorable foreign exchange rate was partially offset by a onetime sales tax assessment at the top line. Gross profit increased $1 million or 8%, primarily due to changes in the foreign exchange rate. Operating expenses increased 8% or approximately $1 million due to higher selling and administrative costs. Operating income was $3 million, up 11% compared with a year ago. And lastly, unallocated corporate expenses in the quarter were $5 million, compared with $4 million last year due to higher employee wage and benefit costs.

The effective tax rate for the quarter was 25.7%, up from 16.8% in the second quarter last year. Last year foreign source income, which is generally taxed at a lower rate than that in the U.S., was a higher percent of total income. Also last year we recognized a favorable impact to the domestic effective rate, following Congress' renewal of the R&D tax credit.

Now let's continue with a recap of the six month year-to-date results. Consolidated six month sales of $818 million increased $107 million or 15% from a year ago, with sales up in all segments. Consolidated gross profit was $247 million, an increase of $58 million or 31% from last year.

Gross profit increased in all of our business segments. The gross profit margin was 30.2% of net sales, up from 26.6% year ago. Consolidated operating income was $95 million, up 82% from $52 million last year, driven by higher sales across the board and strong margin improvements in both Consumer Healthcare and Rx Pharmaceuticals. This translated into a consolidated operating margin of 11.6% of sales, up 430 basis points from the same period last year.

Consolidated net income was $68 million, up from $38 million last year. Note that last year's net income included $4 million of costs for a product recall and the $417,000 restructuring charge I noted earlier.

Reported earnings per share for the six months of fiscal 2008 were $0.72 cents per share compared with $0.41 per share last year, which included expense of $0.04 per share for the product recall and less than $0.01 per share for the restructuring charge.

The year-to-date effective tax rate was 23% in fiscal 2008 and 18.4% in fiscal 2007. Foreign source income for the first six months of fiscal 2008 was 45% of the total income before income taxes, down from 80% during the same period in fiscal 2007. The shift in income was the main lever which raised our rate versus last year.

Again, let's go to the operating results by segment, starting with Consumer Healthcare. Consumer Healthcare sales increased $71 million or 14% to $588 million, driven by several positive factors. Organic growth of 13% was driven by new product sales of $20 million, including our introduction of coated fruit flavored nicotine gum, a few smaller cold/cough items, and nutrition and launches in the UK and Mexico. We enjoyed sales of over $40 million year-to-date as a result of the continued absence in the OTC marketplace of the key competitor. And our team continues to be intensely focused on retaining this business as Perrigo's into the future.

Our international Consumer Healthcare operations also performed very well year-to-date, posting a $14 million or 20% improvement in sales, with favorable currency contributing 7 percentage points of this growth.

Inorganic growth from our acquisition of the pediculicide products purchased from Qualis also added to the top line growth. These growth factors were partially tempered by the year-over-year impact of our strategic exit from the fiber laxative and effervescent cough/cold productline, which contributed $15 million in the first half of last year.

Leveraging this strong sales growth, Consumer Healthcare gross profit increased to $158 million, a $43 million or 37% improvement from last year. The gross profit margin was 26.9% of sales, a 460 basis point improvement from fiscal 2007. Approximately three quarters of this improvement in gross margin is the result of production efficiency, focused inventory management, and lower obsolescence cost. The remainder of the year-over-year improvement is the result of the negative impact that product recall expenses had on our gross profit margin last year.

Year-to-date operating expenses increased $9 million or 11% in the wake of a 19% increase in research and development outlay. Our spending pattern in R&D has been more front-end loaded this year than last.

On the SG&A side we're spending more in promotion and sales activities in preparation for new product launches, and are experiencing high year higher wage and benefits costs as we invest further in IS infrastructure this year. As a percent of sales, however, operating expenses for the first six months were 15.3%, down from 15.6% a year ago. In all, Consumer Healthcare operating income was $68 million or 12% of sales, up from $35 million or 6.7% of sales last year. The effective higher sales volumes continued to drive efficiencies throughout our operations in the first half of the fiscal year.

Year-to-date our Rx Pharmaceuticals sales were $74 million, up from $60 million last year. Service and royalty revenue contributed $11 million, essentially flat from last year. And revenues from the Glades product acquisition were $14 million.

The inorganic growth in the Glades acquisition was partially offset by pricing competition on existing products. Gross profit was $33 million or 44.6% of sales, up from $25 million or 42.2% of sales last year.

Operating expenses were up $1 million for the period but down 310 basis points as a percent of sales as a result of the greater leverage from higher volume. Operating income was $16 million, up 67% from $9 million last year.

Net sales for the API segment were $73 million, an increase of 26% from $58 million last year. Gross profit was $27 million, up from $22 million a year ago on higher volumes and a favorable product mix versus last year.

Operating expenses were $16 million compared with $12 million last year as a result of a 33% increase in research and development spending, higher employee-related costs, and the withholding tax assessment. Operating income of $11 million was essentially unchanged from a year ago.

Net sales were $83 million, up 10% over last year, in our Israeli pharma and consumer products business, due to the impact of favorable foreign exchange rates on both businesses. Gross profit was $29 million, up 10%, again as a result of exchange rates and a favorable sales mix.

Operating expenses increased 13% or $3 million, due primarily to increased promotional activity, higher employee-related costs, and an Israeli withholding tax assessment. Operating income for this segment was $6 million, up 3% from last year.

Unallocated corporate expenses for the six months were $5 million compared with $8 million last year. The decrease was mainly due to the favorable settlement of a legal claim, which offset expenses in the first quarter of 2008.

In summary, we are pleased with the excellent first-half results, all segments growing their top line, new product launching, and our operating team's focus on achieving production efficiencies and managing working capital. And I would like to remind you that these results still do not yet include our cetirizine and omeprazole store brand lunches, which we expect to contribute quite positively beginning in our third fiscal quarter ending in March.

Let's move on to the strong story of the balance sheet this quarter. Working capital, excluding cash and investments, was $333 million at the end of the second quarter versus $292 million last year, an increase of $41 million. As a percent of annualized year-to-date net sales, this represents 20.3%, down 30 basis points from last year. Debt to total capital was 24.8% at the end of the quarter, down from 29.3% last year.

Accounts receivable were $311 million compared with $247 million a year ago, reflecting our higher fiscal 2008 sales volume. Inventories were $326 million, up only 1% from $323 million at this time last year. As I noted in the last earnings call, we're placing weekly focus on this balances and the importance of remaining lean, even with double-digit sales growth and the preparation for upcoming significant new product launches.

Accounts Payable were $194 million compared with $173 million a year ago, also reflecting increased focus on working capital management.

Cash provided by operations was $67 million in the second quarter, up $43 million from this time last year, and a record for this fiscal quarter. Cash provided by operations was $95 million for the first six months compared with $18 million last year. We're very pleased with this performance, which was related to both our increased earnings and the timing of the inventory payable cycle.

Capital expenditures to date were $14 million. Despite the slow start to our spending so far in year, we still anticipate spending between $40 million and $50 million for the full year.

In the second quarter we repurchased 1.1 million shares of Perrigo stock for $31 million under our our 10b-51 stock repurchase plan. This takes our year-to-date repurchase tally up to 1.3 million, totaling $35 million. We're taking a more aggressive approach to our share repurchase and received Board approval on February 1, 2008 to repurchase up to an additional $150 million of stock over the next two years. We paid cash dividends of $9 million or $0.095 per share for the six months of fiscal 2008, an increase of nearly 10% from last year.

Given our excellent performance in the first half of the year, we continue to view fiscal 2008 with a great deal of optimism. So we're updating our full year fiscal 2008 guidance to reflect several factors. But in order to be able to really understand the components of our revised forecast for the full year, I think it makes sense to first level set everyone on the critical assumptions we have been using, and help paint a picture of how these have evolved over the course of the year.

First and foremost, it is important to comment on omeprazole. On December 10 we announced our expectation for the product launch of omeprazole in the third fiscal quarter of 2008. At that time we provided prelaunch product specific guidance of $0.20 to $0.25 per share for this year. Our guidance does not reflect any change to this previous guidance.

A critical assumption for fiscal 2008 surrounded the absence in the market of a large Consumer Healthcare competitor. At the beginning of the fiscal year it appeared that this company would be coming back online near the end of December. Over the last month we have been carefully monitoring publicly available information and revising our expectations of how long we will be servicing our customers at these higher levels. As of today, we have forecasted that our key Consumer Healthcare competitor's return to the marketplace is increasingly uncertain, and will be even later than anticipated months ago. As such, we now expect that the new business awarded to the Consumer Healthcare segment will continue throughout the full fiscal year.

The next critical assumption we made in the creation of our earnings guidance was with respect to our ability to execute against our own operations and sales goals. As I just spent time outlining to you over the last of minutes, the team executed well in the first half of the year, even when compared to the high bar we had placed before them. We're expecting the second half of the year to be a very busy period, with important product launches and higher volumes through our factories. Our operating team remains razor focused on productivity during this busy time. Our revised guidance reflects our confidence in the operating team's ability to continue to execute at this higher level of demand and expectations in the back half of year.

The fourth item which is playing a critical role in the revision of our earnings guidance is the rate we use for income taxes. As you may remember, our original guidance regarding taxation assumed a rate of between 25 and 28%. This was based on our expectations at that time of the worldwide income mix. Our revised sales forecast reflects new expectations of our global product portfolio. Given changes to that portfolio, we now expect the full year tax rate to be in a range of 21 to 24%.

With this perspective, we now expect full year 2008 EPS to be in a range of $1.50 to $1.60 per share, up 69 to 80% from last year's adjusted EPS, and an increase from our most recent guidance of $1.32 to $1.47 per share. I would like to again reiterate that this guidance includes our current estimate of $0.20 to $0.25 per share for the launch of omeprazole, unchanged from December 10.

With this change to EPS guidance, we also now anticipate cash flow from operations in a range of $180 million to $200 million for the full year.

Now let me turn it back to Joe.

Now that Judy has given you all the details of our second quarter and our outlook for earnings and cash flow, I would like to talk about executing on our plan. This quarter is another example of the Company executing our plan.

When I joined Perrigo 16 months ago I stressed the importance of executing on our five priorities of quality, customer service, new products, low cost structure, and people development. The first and foremost priority for us is quality. Our team is focused on meeting quality goals while continuing to challenge our cost structure. We're achieving our financial results while increasing our quality expenditures for quality prevention and appraisal by approximately 10%.

This focus is helping us to reduce our overall total cost of quality. Quality will always be an important priority for us at Perrigo, as we have seen in the market a company cannot afford to cut corners on quality.

Our second goal is about customer service. Executing good customer service is essential to our sustained growth. We have improved our customer service level since the middle of last year, but we realize we still have room for improvement and we're maintaining our vigilance in this area.

Our third priority is about executing on new product launches and building our pipeline. Cetirizine was launched during January, ahead of the launch of a national brand. We have an excellent cost position and expect to have more than 80% market share for store brand cetirizine despite numerous other competitive approvals.

We have customized marketing programs with on-shelf displays, print ads, pharmacy introduction kids, on-shelf signage and more. We believe no other store brand marketer can offer these value-added programs to the retailers, which is why we expect to have more than 80% of the cetirizine market share.

Omeprazole OTC, our next product launch, is the largest product launch in our 120 year history. We expect omeprazole to add $150 million to $200 million in annual sales after its launch in the next six to seven weeks. Think about the size of this product. We're building more than 120,000 in-store promotional displays to launch omeprazole OTC. Our team is working 24 hours a day, seven days a week, to get this product to our customers' shelves. There is genuine excitement throughout the Company surrounding this product, and our customers are feeling it too. Look for it on the shelves soon.

In the smoking cessation category we continue to gain share. Coated fruit nicotine gum is just the latest addition to our offering as another exclusive store brand product for us. This year there are more exciting new products coming to the market. We have an opportunity of approximately $1 billion at retail in exclusive new products over the next year, and we are continuing to build our new product pipeline.

Adams Respiratory filed suit against Perrigo after we filed and ANDA for the Paragraph IV for a generic version of Mucinex, or guaifenesin extended-release tablets, 600 milligrams, a $100 million plus name brand product. I feel very confident in our position that we do not believe we infringed any valid or enforceable claims of their patent. The thirty month stay began on September 27, 2007.

In fiscal year 2008 we plan to file more than 10 ANDAs, with more of half of them being Paragraph IV filings. We have increased our funding of R&D in all of our business units to keep on this pace to ensure that this important growth engine is sustainable.

Our fourth priority, in order to be a leader in this space you must be the low-cost provider. We have organized -- actually reorganized the Perrigo supply chain into a global organization. And we're working to improve our supply chain, and have implemented numerous major value stream initiatives this year. As an example, we plan to be vertically integrated on store brand cetirizine, which helps position us as the low-cost provider for this important product.

Finally, people are key to executing this plan. We are constantly working to find the right people to grow with the Company. For example, major pharmaceutical companies have been reducing their workforce. In Michigan we have reached out to the scientific and technical community and have recently added more than 25 highly skilled and motivated employees to our ranks from a big pharma company. Perrigo is committed to having the right environment to foster growth in its people.

Our management team has met with many of you during the past couple of months at various conferences and here in Michigan at our headquarters, and we will continued to do so. I believe that all companies are judged on their last quarter's performance, and that our Perrigo management team will continue to stay focused on the work ahead and executing our plan for the next quarter and beyond.

Since the second half of last year my team and I have been focused on improvements in our working capital and cash flow from each of our business units. We will continue meeting weekly to focus on the metrics that help us to manage inventories and improve our processes. In these volatile market conditions, I like the fact that we are positioned as a Company with the ability to generate cash on a solid foundation. We're well underway to meeting our revised goal of $180 million to $200 million in cash for the year.

Overall, it is an exciting time for us at Perrigo. Our base business is executing well, so we increased our full year guidance. We're taking advantage of current market conditions, investing in our future, and are being selective about strategic acquisition opportunities, which can help us deliver value to both our customers, as well as our shareholders. We will stay focused on priorities and we will execute on our plan. Now let's take your questions.

(OPERATOR INSTRUCTIONS). Daniel Rizzo, Sidoti & Co.

I think you said that your cough and cold sales were up 11% despite weakness in the market. Is that strictly like market share gain from like Liner Health?

The answer to the question, just go back to specifically what I said, that the overall cold/cough market is down 4% from last year. That is including both store brand and national brand. I am delighted to share that our Perrigo store brand cold/cough is up 11%, predominately reflecting some of the gains we had in the Liner pick up from their quality issues, but also just some incremental new products that we have added to the portfolio.

Really two areas, the Liner pick up for products like loratadine, as well as the new product introductions that we have. Also including some of the gains on pseudoephedrine and phenylephrine have really been the three primary areas.

Judy, you might have said this, but did you expect Liner Health to be shutdown for the rest of your fiscal year?

Our updated guidance reflects our assumption that we will service those customers throughout the year. Yes.

Randall Stanicky, Goldman Sachs.

I just have a couple. The first follow-up, Judy, can you just be more specific, what did you have in guidance with respect to Liner before and now? Is it the $90 million to $100 million, that total, the way we should we should be thinking about it?

That would be a reasonable assumption, yes. That was the assumption we had given at the beginning of the year, the magnitude of the space. We said our original guidance assumed presence in that space for half a year and we're now assuming we are there for the full year.

Just to be clear, the guidance increase today doesn't include a change in that assumption?

The guidance today includes our new assumption that we are present for the full year, the full $90 million to $100 million. Our earlier guidance had only reflected a portion of the year.

Got it.

If I can add to Judy's comment, the issue for us is when we originally acquired the business we, as Judy mentioned, we picked up $90 to $100 million in annual sales. What we could not guarantee at that time was the duration of how long we would hold onto that business. And given the fact that in the current environment it appears that our competitor will be out for a longer time period we have now, as Judy mentioned, increased the probability or certainty that we would keep that business for the full year.

Got it. Is it possible to quantify that, or to be proportional to the runrate that we have been talking about, which I think has been roughly $20 million?

It is a low bit more than $20 million, but yes. Some quarters are a little bit higher just reflecting the fact that there is some cold/cough influence in some of the business.

Got it. Just two more quick questions. First, Judy, obviously a great job on getting the tax rate down. Can you talk about the sustainability of that? It sounds like that is an ongoing runrate. As we think about fiscal 2009, not asking obviously for guidance, but is there a way or an opportunity to further decrease that, or is that the new way to think about the more sustainable tax rate for Perrigo going forward?

As we have talked about in September at our analyst day, obviously the focus of the tax team is continually finding and implementing tax planning measures. That is their modus operandi. Their entire focus is also driven on looking at the global product portfolio. So at a time of our September meeting I reflected the belief of the tax department, given the knowledge of our overall long-term product portfolio, that the tax rate would be coming down from above 25, between 25 to 30% zone, down to mid-20s, and eventually getting down to 20 to 25%.

As you can see with this year's forecast and earnings guidance we're at that ballpark already for this year. If I look to the future, obviously the specific rates to your comment it is hard to give guidance for next year, given that we do have a full year top line forecast out yet for 2009. But we will look at the product mix, and with tax planning measures in place, we believe that the mid-20s is still a reasonable assumption as a starting point for your modeling. And obviously as we know more about the product mix, we will than be revising and being much more specific in the exact percentages for an 2009 runrate.

But certainly we're not in a place where we are going back to the old days of 30 plus percentage points on taxes. Again, being more specific in 2009, but I would refer you back to the September information that we presented in New York.

That's helpful. Joe, a last question. Just a more theoretical question. And I think, Judy, you mentioned the more aggressive stance in terms of buyback going forward. I'm just curious as to why. With rates decreasing, obviously equity valuations lower than they were a few months ago, what are you seeing? Are you not seeing opportunities from the acquisition front that you would have thought, or is it just an internal change in view of capital uses?

Let me make -- maybe add to one comment that Judy made on tax before I get into your second question here on the buyback. But relative to the tax team, they have done just an outstanding job in accelerating some of the programs we had in mind, but they are just able to move through them much quicker. Obviously, some other activities on new products have occurred. This team is just working really well in executing our plan and just getting things done faster. So much credit to Judy and the entire tax team and what they have done with the tax effort so far this year.

On the question of extending the buyback, we just -- we looked at our utilization of cash and capital, and obviously we're generating a significant amount of cash, as exemplified by this particular quarter. We still are looking at the future as to where we go. We feel very -- we think we have got very solid organic growth in our business, and therefore we're generating significant cash. We are looking at what we could do with that cash.

At the same time we are continuing to look at acquisitions, such as the Galpharm acquisition, where it is in nice tuck-in. It allows us to improve our position in Western Europe. But at this point we feel there is an opportunity to utilize some of the cash in buybacks and we're going to do that, while we still continue to look at acquisition opportunities. But we don't feel we need to do any acquisitions. We feel we have got good solid, organic growth.

(OPERATOR INSTRUCTIONS). There appear to be no further questions at this time.

Thank you everyone for your interest and your questions. I know Judy provided an excellent review. I think you answered most of the questions that possibly could exist. So thank you everyone for the interest in Perrigo. Have a great day.

This does conclude today's Perrigo second quarter earnings conference call. You may now disconnect. And have a wonderful day.