Analyst Conference Summary

generic pharmaceuticals

conference date: August 6, 2015 @ 7:00 AM Pacific Time
for quarter ending: June 30, 2015 (second quarter, Q2 2015)

Forward-looking statements

Overview: Strong quarter, raised guidance.

Basic data (GAAP):

Revenue of was $2.37 billion, up 27% sequentially from $1.87 billion, and 29% from $1.84 billion in the year-earlier quarter.

Net income was $167.8 million, up 196% sequentially from $56.6 million and up 34% from $125.2 million year-earlier.

Earnings Per Share (EPS) were $0.32, up 146% sequentially from $0.13 but flat from $0.32 year-earlier.

Note diluted share count increased to 522 million from 398 million year-earlier.

Guidance:

2015 adjusted diluted EPS guidance raised from $4.15 to $4.35. Excludes any generic Copaxone revenue this year, but includes expected Epi-pen generic competition.

Conference Highlights:

Note: to lessen the appearance of the impact of the high U.S. dollar, Mylan gave many figures based on "constant currency rates." While it is true this gives a better picture of the units of drugs sold, it does not help the shares, which are in U.S. dollars. Here I have mostly avoided the constant currency figures. -- W.P.M.

Heather Bresch, CEO, called Q2 results "exceptional" despite regulatory delays in approvals of generic and biosimilar therapies.

Main focus is acquiring Perrigo. Believes the Mylan-Perrigo combination offers "unmatched scale in its operations, one of the industry's broadest and most diversified portfolios, immense reach across distribution channels and a unique platform with the size and scale that allows us to continue to be a leading consolidator in our industry." The Mylan shareholder vote is on August 28.

Organic revenue growth: excluding the impact of the Abbott business (EPD), revenue was up 14% y/y on a constant currency basis. EPD revenue was $292 million.

Non-GAAP numbers: EPS $0.91, up 30% sequentially from $0.70, and up 32% from $0.69 year-earlier. Net income $473.3 million, up 53% sequentially from $309.1 million, and up 73% from $273.3 million year-earlier.

EBITDA was $558.3 million, up sequentially from $340.5 million, and up from $371.2 million year-earlier. Adjusted EBITDA was $693.5 million.

Cash and equivalents balance was $440 million, up sequentially from $277.2 million. Long Term Debt was $5.89 billion, up sequentially from $5.75 billion. Cash from operating activities was $223 million. Capital expenditures $74 million.

Generics segment revenue was $2.06 million, up 26% sequentially from $1.64 billion, and up 35% y/y from $1.53 billion.

Specialty Third Party Net Sales were $301.9 million, up 43% sequentially from $211 million, and up 5% y/y from $287.8 million.

Other revenue was $14.7 million.

Cost of sales was $1.36 billion, leaving gross profit of $1.01 billion. Operating expenses of $731.5 million consisted of: research and development $168.2 million; selling general and administrative $564.2 million; $0.9 litigation settlement benefit. Leaving income from operations of $276.6 million. Interest expense was $93.9 million, and other expense was $2.0 million. Income tax provision was $12.8 million.

Gross margins have been improving, particularly in North America.

Mylan has about 300 ANDAs pending with the FDA. Believes approvals are simply a matter of time. Optimistic about approvals in remainder of 2015.

Pleased with FDA guidelines for biosimilars, including Copaxone. Received clarifying questions from FDA that indicate any major concerns about similarity "are behind us."

Launched new Hepatitis C product in India, in partnership with Gilead. Has about one-half of market share in the developing world.

The adjusted diluted EPS target for 2018 remains a minimum of $6 per share.

Q&A:

Alternative in Perrigo does not go through? We said Abbott would be the first of a series. We like Perrigo, but we don't have to have Perrigo. There are other assets that would leverage our assets. We are looking to get to a scale and size to be a leading consolidator of our industry.

Copaxone push out? We said the financially responsible thing to say. We wanted to take uncertainty out of the guidance. We are working diligently to get our product approved. We are confident we have met the expectations of the agency.

We are fully committed to our investment-grade credit rating.

New customer agreements and payment terms? With global consolidation of customers we are proving ourselves as the reliable supplier. We completed agreements which extended customer payment terms. The benefits exceeded the cost of capital needed. It was a win-win.

Inventory levels in trade? We have been operating normally, there are no unusual inventory levels at our customers.

Generic Nexium contribution? The guidance shows the strength of our core business. It is not based on any one product. We are managing a bundle of risks and opportunities around the globe.

Would you consider buying back stock if it stays at current levels? We have the flexibility to buy back our stock, and it is a great buy right now.

Accounts receivable? The y/y increase is from the EPD acquisition plus the change in customer payment turns.

Epi-pen? Our outlook is very positive. Growth is in double-digits this year. We already are in a multi epinephrine market.

What remains with FDA with generic Copaxone? Believes fundamentally on same page with FDA. Remaining questions are about metrologies, we have not yet responded to the latest set of questions, but will in a few days.

Pricing environment? Slight increases in North America, mid-single digit declines in Europe, and low single digit price declines in rest of world. Overall, flat globally.

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