Analyst Conference Summary

generic pharmaceuticals

conference date: March 1, 2017 @ 10:00 AM Pacific Time
for quarter ending: December 31, 2016 (fourth quarter, Q4)

Forward-looking statements

Overview: Excellent fourth quarter results. Sees lots of growth ahead.

Basic data (GAAP):

Revenue of was $3.27 billion, up 7% sequentially from $3.06 billion, and up 31% from $2.49 billion in the year-earlier quarter.

Net income was $417.5 million, up sequentially from negative $119.8 million, and up 115% from $194.6 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.78, up sequentially from negative $0.23 and up 105% from $0.38 year-earlier.

Guidance:

Total 2017 revenue is expected between $12.25 and $13.75 billion. Non-GAAP guidance: Gross margin 54.5% to 56.5%. R&D expense 5.5% to 6.5% of total revenue. SG&A expense 18.5% to 20.5% of total revenue. EBITDA $4.35 to $4.75 billion. Net income $2.8 to $3.0 billion. Diluted EPS $5.15 to $5.55. Cash provided by operations $2.5 to $2.8 billion. Capital expenditures $400 to $500 million. Free cash flow $2.0 to $2.4 billion.

By geography, y/y growth >5% in North America, >30% in Europe, Rest of World >20%.

Still guiding to $6 non-GAAP EPS in 2018.

Does expect some pressure on margins in 2017 from EpiPen pricing changes, essentially a negative $400 million impact.

Seasonality should be similar to 2016.

Conference Highlights:

Note that in addition to presenting Q4 and full year 2016 results, this conference was billed as Investor Day. So it was much longer than usual. My notes are more condensed than usual in order to compensate for that. [William P. Meyers]

Mylan CEO Heather Bresch commented, "Our strong 2016 results were highlighted by year-over-year constant-currency total revenue growth of 18% and adjusted EPS growth of 14%. The fourth quarter capped off the year with impressive revenue growth of 31% and adjusted EPS growth of 29%. Again, we saw all of our regions contribute to our results for the year, with double-digit revenue increases in North America, Europe and Rest of World, reflecting the resilience, differentiation and diversity of our global platform and our unwavering focus on execution. The diversity of our business was further demonstrated by our six global therapeutic franchises that delivered approximately $1 billion or more in revenue: Respiratory and Allergy, CNS and Anesthesia, Infectious Disease, Cardiovascular, Gastrointestinal, and Diabetes and Metabolism."

Starting this quarter no longer breaking down sales by specialty versus generics. Sales were broken down by region. North America $1.57 billion, up 22% y/y, mainly from the Meda acquisition and topicals-focused business acquisition, Renaissance. Prices were lower, as were overall volumes on existing products. Europe sales were $927 million, up 50% y/y, on Meda, higher volumes on existing products, but lower pricing. Rest of World sales were $739 million.

Remains on track for introduction of biosimilar products. Continued to be engaged with the FDA on generic Advair. In the quarter 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 $1.57, up 14% sequentially from $1.38, and up 29% from $1.22 year-earlier. Net income $842 million, up 16% sequentially from $726.4 million, and up 36% from $620 million year-earlier. Gross margin was %, up from year-earlier.

EBITDA was $879 million, up 198% sequentially from $294.7 million, and up 34% from $658 million year-earlier. Adjusted EBITDA was $1.212 billion, up 46% from $827 million year-earlier.

Cash and equivalents balance was $1.0 billion, down sequentially from $1.26 billion mainly from the Meda acquisition. Long Term Debt was $15.2 billion, up sequentially from $11.3 billion. Full year 2016 Cash from operating activities was $2.05 billion, adjusted cash fromoperations of $2.52 billion. Capital expenditures $390 million. Adjusted free cash flow $2.13 billion.

Cost of sales was $1.93 billion, leaving gross profit of $1.34 billion. Operating expenses of $1.02 billion consisted of: research and development $195 million; selling general and administrative $709 million; $116 million litigation settlement. Leaving income from operations of $316 million. Interest expense was $150 million, and other expense was $59 million. Income tax benefit was $193 million.

Mylan has about 300 ANDAs pending with the FDA. Over 1,200 products in the pipeline, 940 regulatory submissions [must be multiple countries] are pending aproval and over 3000 submissions are planned. Believes approvals are simply a matter of time. Has over 4,200 active patents. Mylan operates in 165 countries and has over 7,500 marketed products. Mylan is #6 worldwide for prescription volume, and is #2 in the U.S. and #1 in France.

The biologics/biosimilar pipeline has 16 unique products in it. Mylan is already marketing Hertraz (Trastuzumab - Herceptin) in 13 countries. Partnered with Biocon and Momenta for this. Wixela Inhub is the planned name for generic Advair for asthma and COPD.

Despite the "volatility" in the U.S. during 2016, revenue at $11.08 billion hit the middle of guidance, and EPS was $4.89, just a penny below the high end.

Estimated 2017 sales by type: OTC 8% RX 29% GX (generic) 63%.

Recently partnered with ChemoID for optimizing cancer treatments. Also with HepBuzz to test for HCV.

Expects to reduce leverage ratio from 3.8x in 2016 to 3.2x by end of 2017.

Q&A:

Earlier indicated Meda was last large deal, still true? From an infrastrucutre perspective we now have the footprint we need. There are still emerging and expansion markets. But we are still looking at appropriate acquisitions and product acquisitions. A lot of great assets will be coming up for sale around the globe.

EpiPen in Q4? EpiPen plays an important role in our healthcare system, but it is just one of a large number of products. Our 2017 guidance has conservative assumptions for EpiPen. We want the generic to be promoted and available.

Generic Advair in guidance for 2017? We probability weight the launches, including Advair. We have modeled competition in the numbers.

Supply chain for Wixela Inhub? We control both the device and drug manufacturing. We invested $700 million in this project, which is a high bar for further competition. We manufacture 80% of what we sell overall. We see no capacity constraints.

Border tax, if passed? 80% of what we sell in the U.S. is manufactured in the U.S., but some components are imported. If we have a lower corporate tax rate, with a reasonable border tax, it would likely be neutral overall at worse.

Perrigo interest? It was strategically what we could do together. Our Meda acquisition accomplished what the Perrigo deal would have.

Generic pricing environment, peers say it worse than mid-single digits? Mylan is differentiated in its business model. It includes new product launches. You need to realize we are not U.S.-centered, which helps us in a hyper-competitive environment.

Wixela Inhub, why the name? It is just the first of these complex products to come to market. Our product has unique features.

The $6 2018 EPS target includes no revenue for biologics/biosimilars/insulin, but it does include the development costs. Products will come to market in the EU and Canada before the U.S.

The complexity of biosimilar approvals in the U.S. we have shared does not indicate our level of confidence in approvals, which is high.

Neulasta, why is your product not approved when others have been? What we see in EMEA is we picked up more variability in our early trials and so conducted larger trials.

DOJ EpiPen misclassification update? We hope to wrap it up as soon as possible.

Are you going to use acquisitions to hit the 2018 EPS target? We are not going to do anything different. We are committed to maintaining our investment grade debt rating.

We believe we will be a consolidator in the OTC market. We have leverage from our overall size.

If President Trump can indeed speed up the FDA, that would benefit Mylan, which has a huge backlog of drugs awaiting approvals. If lowering costs includes shifting to generics, Mylan would also benefit.

OpenIcon Analyst Conference Summaries Main Page

Search

More Analyst Conference Pages: