Analyst Conference Summary

generic pharmaceuticals

Mylan, Inc.
MYL

conference date: August 8, 2018 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2018 (second quarter, Q2)


Forward-looking statements

Overview: Disappointing revenue, strong cash flow, difficult U.S. market. Large differences betwee GAAP and non-GAAP net income and EPS.

Basic data (GAAP):

Revenue of was $2.81 billion, up 6% sequentially from $2.65 billion, and down 5% from $2.96 billion in the year-earlier quarter.

Net income was $37.6 million, down 57% sequentially from $87.1 million, and down 87% from $297.0 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.08, down 53% sequentially from $0.17 and down 85% from $0.55 year-earlier.

Guidance:

Full 2018 revised downward. Revenue $11.25 to $12.25 billion, about flat y/y. Adjusted EPS $4.55 to $4.90. Adjusted free cash flow $2.10 to $2.50 billion.

Conference Highlights:

Mylan CEO Heather Bresch commented: " Our Europe and Rest of World segments continue to deliver growth in line with our expectations. However, our efforts to serve patients in the U.S. have been shaped by the industry's transformation there, and our results and guidance for 2018 are directly correlated with the ongoing rebasing of the U.S. healthcare environment. That said, the fundamentals of Mylan's global business remain strong."

Fighting to provide the world's 7 billion people access to fairly priced medicine. Ragged on the insurer and distributor system. Generic copaxone from Mylan has been kept from patients by a greedy system prefering to sell the high-priced original. So investments in biosimilars have disappointed so far. But Mylan's fundamentals are intact.

Rajiv Malik, President of Mylan, said "we launched Fulphila, our pegfilgrastim biosimilar, in the U.S., and CHMP issued a positive opinion for our biosimilar of Humira in Europe. The depth and breadth of our scientific capabilities and expertise continue to strengthen the durability of our differentiated business model and position us as a partner of choice. We are confident that our investments in these complex products will drive long-term growth for the company, despite some near-term market challenges in the U.S."

Believes will eventually get biosimilar approvals and traction in the U.S. market. Received a minor complete response letter for generic Advair in late June and responded in July. Prepared to launch upon receipt of approval. Neulasta biosimilar launched in July, with uptake expected to be gradual. Still having manufacturing problems at Pfizer for Epipen, so in short supply.

Separately the Mylan board released a statement saying the US public markets undervalue the company, and so is conducting a strategic review to evaluate alternives "to unlock the true value." So far, causing Mylan stock to plunge this morning.

Revenue by geography: North America $1.00 billion, down 22% y/y. Europe $0.99 billion, up 4% y/y. Rest of world $764 million, up 10% y/y.

North American decline was from lower volumes including Epipen, plus timing of shipments due to the Morgantown facility restructuring.

Non-GAAP numbers: EPS $1.07, up 11% sequentially from $0.96, and but down 3% from $1.10 year-earlier. Net income $551.6 million, up 11% sequentially from $495.6 million, but down 6% from $589.9 million year-earlier. EBITDA was $683 million, Adjusted EBITDA $867 million. The main difference with GAAP results was $430 million in purchase accounting related amortization and $76 million in restructuring expense, but there were lots of substantial items.

Cash and equivalents balance was $330 million, down sequentially from $367 million. Long Term Debt was $13.3 billion, up sequentially from $12.45 billion. Cash flow from operations was $430 million GAAP, or about $707 million adjusted. Capital expenditures were $45 million. Adjusted free cash flow $661 million. Bond offerings of $0.5 and $1.5 billion were mainly used to pay down older debt. Intends to repay over $1.1 billion of debt over the next year using cash flow.

Cost of sales was $1.85 billion, leaving gross profit of $963 million. Operating expenses of $784 million consisted of: research and development $207 million; selling general and administrative $623 million; $46 million litigation benefit. Leaving income from operations of $179 million. Interest expense was $139 million, and other expense was $21 million. Income tax benefit was $19 million.

Mylan has about 225 ANDAs pending with the FDA. Over 1,200 products in the pipeline, 940 regulatory submissions [must be multiple countries] are pending approval 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, including over 200 brand products. Mylan is #6 worldwide for prescription volume, and is #2 in the U.S. and #1 in France. Sells over 600 products in the U.S.

The biologics/biosimilar pipeline has 16 unique products in it. Mylan is already marketing Hertraz (Trastuzumab - Herceptin) in 15 countries. Partnered with Biocon and Momenta for this.

Mylan remains committed to reducing its debt. No debt matures soon. Goal is 3.5 debt to adjusted EBITDA.

Q&A:

Return of Morgantown lost sales? We are getting Morgantown volume back up as fast as possible. The drugs taken off the market are the ones where there are many competitors. When we are up and running again we will go after the volume sales again.

The hit to the bottom line is partly from costs from Morgantown.

Strategic review timing and details? We are excited that the board is taking these steps. We are absorbing negative industry dynamics, but Mylan is better set to absorb them. Even if you take the low end of our range and a ten multiple we would be at $45 per share. Everything is on the table.

Will gross margin go lower once Morgantown restructuring is complete? Morgantown is a very meaningful facility for us, but not our only one. Some products make money, some don't, we are trying to protect the profitable part. We believe are profitability levels are sustainable.

Neulasta distribution? We are partnering with clinics and payers, we are happy so far.

Copaxone market? We lowered the price by 60% but the channel is sticking to the higher prices options. We are seeing low single digit to 20% generic adoption, we will keep fighting for more share for our biosimilars and complex generics. Compare that to 90% adoption is solid small molecule drugs, traditionally.

Epipen? Supply from Pfizer has been eratic. We are doing what we can.

Strategic review, short term value creation, splitting the company? Premature to talk about details.

Pricing dynamics with base products? More stable in U.S. lately.

New product revenues? About $200 million, about half in U.S.

Some of your competitors are much more conservative in guidance, so they can beat it. You? What peers? Several have rebased their guidance. We believe our new guidance shows the worst case at the bottom end and we should grow from here.

We (Mylan and America) need formulary access to biosimilar and complex generic products.

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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. This is financial journalism, not advice.

Copyright 2018 William P. Meyers