Analyst Conference Summary

generic pharmaceuticals

Mylan, Inc.

conference date: May 1, 2014 @ 8:00 AM Pacific Time
for quarter ending: March 31, 2014 (first quarter, Q1 2014)

Forward-looking statements

Overview: Sequential revenue dip, but up y/y. Operating cash flow tripled y/y.

Basic data (GAAP):

Revenue of was $1.72 billion, down 5% sequentially from $1.81 billion, and up 5% from $1.63 billion in the year-earlier quarter.

Net income was $115.9 million, down 36% sequentially from $180.2 million and up 11% from $106.9 million year-earlier.

Earnings Per Share (EPS) were $0.29, down 63% sequentially from $0.78 and up 7% from $0.27 year-earlier.


Reaffirmed full year 2014 guidance of non-GAAP EPS of $3.25 to $3.60, excluding any mergers, acquisitions, etc. $1.2 to $1.4 adjusted cash flow from operations. Capital spending $350 to $450 million.

For Q2 2014 expects non-GAAP EPS of $0.67 to $0.70, excluding Copaxone.

Conference Highlights:

Results slightly exceeded Mylan's expectations, driven by Indian antiretroviral franchise. Ongoing regulatory delays continue to hold Mylan back.

The strong U.S. dollar had a negative impact of about 2% on revenue.

New products contributed $162 million to revenue. Third party net generics sales were $1.51 billion, up 7% y/y. Specialty segment sales were down 8% y/y to $194.7 million due to slower EpiPen sales as inventory corrected, somewhat offset by improved sales of Performist Inhalation Solution.

GAAP Gross margin was 43.0%, from 42.5% year-earlier.

Non-GAAP numbers: EPS $0.66, down 15% sequentially from $0.78, and up 6% from $0.62 year-earlier. Net income $260.4 million, down sequentially from $308.1 million, and up 6% from $245.9 million year-earlier.

EBITDA was $392.4 million, down sequentially from $436.5 million, and up from $350.5 million year-earlier. Adjusted EBITDA was $459.7 million.

Non-GAAP gross margin 50%, up from 49% year-earlier. Believes will increase in second half.

Cash and equivalents balance was $243.0 million, down sequentially from $291.3 million. Debt was $7.8 billion. Cash from operating activities was $286 million. Inventories ended at $1.7 billion. Capital expenditures were $72 million.

Cash from operations was lower in Q1 than it is likely to be in future quarters.

Cost of sales was $977.8 million, leaving gross profit of $737.8 million. Operating expenses of $498.8 million consisted of: research and development $118 million; selling general and administrative $377.7 million; litigation settlement benefit $3.1 million. Leaving income from operations of $239.0 million. Interest expense was $8.27 million, and other expense was $4.6 million. Income tax provision was $35.1 million.

Biologic biosimilar development is in varying stages by product, includes substitutes for Herceptin, Neulasta, Humira, Avastin, and Enbrel. Trastuzumab (Herceptin) will be in a further trial this year. One insulin analog, Glargine (Lantus) has completed Phase I and is expected to move into Phase III trials in 2014. However, there is no clear pathway for biosimilars in the U.S. yet. Generic Herceptin is ready for launch in India.

Revenue by region: North America $782.2 million; Europe $355.9 million; rest of world $370.2 million.

Launched Xulane (generic Ortho Evra) last month, a first-to-market generic contraceptive patch

Mylan has about 300 ANDAs pending with the FDA. Believes approvals are simply a matter of time.

Generic Copaxone continues to be before the FDA and issues may impact the earliest possible generic introduction date, May 24, so it is not included in Q2 guidance.

Believes Mylan can execute on a substantial acquisition before the end of 2014. Has ample borrowing capability.

Agila site in India has only one remaining FDA inspection.


Talks with Meda re Merger? Can't discuss particular transactions. Mylan has been "extremely" active, with the main driver being complementary strategic assets. Inversion (for tax purposes) and synergy would be positive byproducts. You can see the attractiveness of Meda for extending our portfolio. We are very busy "looking at all of them."

Copaxone events at FDA that would cause delay? We see no legal hurdles, it is all regulatory and administrative. There are no science issues. We are working diligently to make the May 24 date happen.

Copaxone launch given Supreme Court review given Teva said you would be facing treble damages? The ruling that stands is their patent is invalid, and the Patent Office has now ruled the reissue patent invalid for a second time. The question before the Supreme Court is procedural, not about the validity of the patent.

Re acquisitions, we have said they must be accretive. We are not doing transactions for their own sake. We believe an acquisition this year will pay off.

For acquisitions, do you prefer diverse or concentrated portfolios? It is both, as you saw with Agila. It could also be complimentary across geographies. We would look at branded therapies in certain areas like dermatology.

European market in Q1? "I continue to be encouraged by the scene." We are seeing generic utilization tick up, especially in France and Italy. Our supply chain gives us competitive costs of goods.

EpiPen tends to be seasonal, with Q3 the largest quarter. Some important launches should be happening in the second half, which could make it more seasonal. We have many launches happening outside the U.S. as well.

Rest of world growth excluding Agila? The growth was mainly the result of the antiretrovirus business in India. The Agila products are sold around the world, so the rest of the world geography is almost all organic growth.

Inventory reductions in specialty business? It was compounded by the cold and long winter, causing changed buying patterns from wholesalers. Since Q1 we are pleased and have regained market share with EpiPen.

Pricing? Rest of world pricing has been very stable.

Did you receive a complete response letter re Copaxone? There are no unanswered science questions, so if we received a letter last year, any issues have been addressed.

We are looking forward to EpiPen being a billion dollar product this year.

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2014 William P. Meyers