Analyst Conference Summary

generic pharmaceuticals

Mylan, Inc.

conference date: November 9, 2016 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2016 (third quarter, Q3)

Forward-looking statements

Overview: Strong y/y revenue growth countered by the $465 million EpiPen settlement. Generic EpiPen to launch in December.

Basic data (GAAP):

Revenue of was $3.06 billion, up 20% sequentially from $2.56 billion, and up 13% from $2.70 billion in the year-earlier quarter.

Net income was negative $119.8 million, down sequentially from $168.4 million, and down from $428.6 million year-earlier.

Earnings Per Share (EPS), diluted, were negative $0.23, down sequentially from $0.33 and down from $0.83 year-earlier.


Full year 2016 adjusted EPS guidance range of $4.70 to $4.90. $6.00 adjusted EPS target in 2018, with targeted growth in the low-teens in both 2017 and 2018

Conference Highlights:

Acquired Meda in Q3 2016. Meda had sales of about $2.3 billion in 2015. The transaction value is about $9.9 billion, in cash and shares. Mylan continues to see Meda as a rare and valuable acquisition.

Mylan CEO Heather Bresch commented, "Over the next 18 to 24 months, we will focus on integrating and driving efficiencies across our global platform and we will be considering how best to deploy our capital and leverage our differentiated platform over the longer-term to ensure Mylan's sustainable growth for many years to come." Also " In our Specialty segment, while EpiPen® Auto-Injector scripts grew quarter-over-quarter, volumes were down due to the lack of wholesaler purchases in the quarter in anticipation of our upcoming generic launch."

"A rapidly growing number of high-deductible health plans which are shifting significant out-of-pocket costs to consumers," in the U.S. Regrets not anticipating so many consumers would have to pay full costs for EpiPens at pharmacies, but responded by new customer assistance programs and the launch of a generic injector in December. Also filed with FDA for a new formulation that could extend the product shelf-life.

There was a $468 million litigation settlement charge in the quarter related to pricing of EpiPens.

Generics third party sales were $2.61 billion, up 22% sequentially from $2.14 billion, and up 13% y/y from $2.24 billion. By geography: North America $1.10 billion; Europe $842 million with volume up, pricing flat; Rest of World $670 million.

Specialty third party sales were $418.7 million, up 4% sequentially from $402.5 million and down 4 % from $437.8 million year-earlier.

Other revenue was $27.6 million.

In the future will not report generics vs. specialty segments, just by geography.

Remains on track for introduction of biosimilar products. Continued to be engaged with the FDA on generic Advair. Yesterday submitted a BLA to the FDA for biosimilar trastuzumab (Herceptin). More applications were made for biosimilars in Europe, and more will be filed with the FDA. Launched a generic version of Copaxone in Germany, and received some questions from the FDA that Mylan believes indicates they are getting near approval.

Price erosion in the generic division is tending to run at mid single digit rates per year.

Non-GAAP numbers: EPS $1.38, up 19% sequentially from $1.16, and down 4% from $1.43 year-earlier. Net income $726.4 million, up 23% sequentially from $592.4 million, and down 1% from $733.8 million year-earlier. Gross margin was %, up from year-earlier. The difference between GAAP and non-GAAP earnings was primarily due to to the acquisition and the EpiPen settlement and tax effects.

EBITDA was $294.7 million, down 53% sequentially from $622 million, and down 65% from $835.7 million year-earlier. Adjusted EBITDA was $1.06 billion, up 7% from $987 million year-earlier.

Cash and equivalents balance was $1.26 billion, down sequentially from $6.36 billion mainly from the Meda acquisition. Long Term Debt was $11.3 billion, down sequentially from $12.8 billion. Cash from operating activities was $1.20 billion, but stated adjusted cash from operations as $1.24 billion. Capital expenditures $118 million. Adjusted free cash flow $1.12 billion.

Gross margins were negatively impacted in the current quarter by higher purchase accounting related items, primarily amortization, as a result of the acquisition of Meda and the Topicals Business, and the significant contribution in the prior year period of new products. But adjusted gross margins were still up 100 basis points y/y.

Cost of sales was $1.77 billion, leaving gross profit of $1.28 billion. Operating expenses of $1.41 billion consisted of: research and development $199 million; selling general and administrative $657 million; $588 million litigation settlement. Leaving income from operations of negative $131 million. Interest expense was $144 million, and other expense was $50 million. Income tax benefit was $206 million.

Mylan has about 300 ANDAs pending with the FDA. Believes approvals are simply a matter of time. Optimistic about approvals in remainder of 2016.

In 2017 will reduce debt and debt related ratios, but could still make small acquisitions.


North American business excluding acquisition? Prices are dropping in mid-single digits y/y, as the trend has been.

Glargine filings? On track to file with FDA in next few months, for both pen and vial.

Contribution from Meda and Renaissance in quarter? Organic business flat y/y? Meda contribution was about $330 million globally. Excluding acquisitions revenue was relatively flat in North America. But our organic pipeline has many opportunities ahead, and we can optimize the acquisitions and our global organization. We now have over 630 products in the U.S. and over 2000 globally. It has always been a competitive market.

Expected 20% global growth at beginning of year, but only 12% so far, volume trends ex-U.S.? It is a dynamic, volatile market place. Our scale allows us to mitigate headwinds. Also we had a hard y/y compare because of some huge product launched Q3 2015. We were pleased with our European business volume and pricing.

EpiPen destocking, generic plans? It is typical when a generic is launched that wholesalers decrease the branded stock. We are hoping to see a surge in volume in 2017 from the generic pen.

Going from $4.80 to $6.00 in 2018, assumptions? By 2018 we assumed EpiPen will only be about 5% of revenue. In 2017 we see EpiPen as 6% of revenue. We have differentiated our product portfolio, which gives us confidence in our targets. We will provide more details on Investor Day.

PBMs (Pharmacy benefit managers)? We have a bilateral dialog, and that applies to the generic EpiPen launch and other new products.

Margins in Q3, weakness? Any weakness was due to product mix.

We are hoping the facts will catch up with the story. We did not blame the system, we started a discussion about the complexity of the system. We need to come together, all the interests, to find a solution. It can't be fixed piecemeal.

Share repurchases? We are authorized to repurchase 930 million shares, but we are focussed on reducing our debt and the possibility of small acquisitions.

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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 2016 William P. Meyers