Analyst Conference Summary

generic pharmaceuticals

conference date: May 3, 2016 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2016 (first quarter, Q1 2016)

Forward-looking statements

Overview: Great quarter with 17% y/y revenue growth while waiting to complete the Meda acquisition. Meda did well too. Saw the usual Q1 sequential revenue decline, however, and GAAP operating expenses were way up due to acquisitions.

Basic data (GAAP):

Revenue of was $2.19 billion, down 13% sequentially from $2.49 billion, and up 17% from $1.87 billion in the year-earlier quarter.

Net income was $13.9 million, down 93% sequentially from $194.6 million, and down 75% from $56.6 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.03, down 92% sequentially from $0.38 and down 77% from $0.13 year-earlier.

Guidance:

Reaffirmed full 2016 revenue between $10.5 and $11.5 billion, non-GAAP EPS of $4.85 to $5.15, and GAAP EPS of $2.38 to $2.43.

Conference Highlights:

Acquiring Meda, which should close by the end of 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. The funding to finance the acquisition is fully committed.

Mylan continues to focus on long-term growth.

Mylan CEO Heather Bresch commented, "We are off to a great start in 2016 with our strong first quarter results delivering year-over-year constant currency total revenues growth of 19% and adjusted diluted EPS growth of 9%. We showed again the strength and resilience of Mylan's diverse, global platform, with double digit revenue growth in Europe, Rest of World and Specialty and high single digit revenue growth in North America. Based on our first quarter performance, we remain highly confident in our guidance and our business outlook for the full year 2016. ... We continue to see nothing out of the ordinary to change our generic pricing assumptions of low- to mid-single digit erosion for the full year."

"We are excited about our pending acquisition of Meda, which will further strengthen and diversify our business in terms of product portfolio, customer channels, and geography, and position us for continued growth and value creation over the near- and long-term. I am pleased to note that Meda's Q1 2016 earnings results reported this morning were in-line with our modeled expectations for the business, and we remain fully committed to and look forward to closing this transaction."

Revenue growth was impacted negatively by 2% y/y by foreign exchange rates.

Generics third party sales were $1.93 billion. By geography: North America $920 million; Europe $588 million; Rest of World $421 million. In Europe there are "government-imposed pricing reductions" as well as competition, but volumes were up from new products, so revenue was up 45% y/y. North American revenue was up 8% primarily due to new product introductions. Rest of world rose 10% mainly on higher volumes of established products, with some offset from lower pricing, particularly for anti-virals in India.

Specialty third party sales were $248 milion, up 17% from $211 million year-earlier. Sales of Epipen were up y/y.

Other revenue was $15 million.

Mylan believes its dermatology platform is "second to none" and will be a future growth driver. Now has 50 biosimilar products in development, with clinical data beginning to come in. A generic Advair product application has been submitted to the FDA.

Non-GAAP numbers: EPS $0.76, down 38% sequentially from $1.22, and up 9% from $0.70 year-earlier. Net income $386.3 million, down 38% sequentially from $620.2 million, and up 25% from $309.1 million year-earlier. Gross margin was 54%, up from 53% year-earlier. The wide difference between GAAP and non-GAAP earnings was primarily due to removal of $249.3 million in acquisition related amortization, $65 million in milestones related R&D expense, and $62 million in other acquisition cost. [WPM: I think milestone payments are cash, and should not be eliminated from non-GAAP numbers, though they could be spread over more than one quarter.]

EBITDA was $417 million, down 37% sequentially from $658 million, and up 22% from $340.5 million year-earlier. Adjusted EBITDA was $584 million, up 16% from $505 million year-earlier.

Cash and equivalents balance was $1.20 billion, down sequentially from $1.24 billion. Long Term Debt was $6.33 billion, up sequentially from $6.3 billion. Cash from operating activities was $81 million, but stated adjusted cash from operations as $202 million. Capital expenditures $52 million. Adjusted free cash flow $150 million.

Cost of sales was $1.28 billion, leaving gross profit of $0.91 billion. Operating expenses of $801 million consisted of: research and development $254 million; selling general and administrative $549 million; $1.5 million litigation settlement benefit. Leaving income from operations of $105.6 million. Interest expense was $70.3 million, and other expense was $16.3 million. Income tax provision was $5.1 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.

Hiring Ken Parks as CFO, to start in June.

Q&A:

Ability to expand margins further? We will continue to optimize, including in cost of goods.

Details on dermatology? We have many organic R&D opportunities. We are also looking to acquire families of products externally.

Meda's weak numbers in line with expectations, Perrigo and Omega? Their results were in line with our expectations. The Street in the U.S. has not followed Meda, so there was a disconnect with concensus. Meda and Omega are not alike. Meda is more diverse both in products and geographically. We have done very well with our acquisitions, can't comment on how Perrigo is running Omega.

U.S. pricing dynamics? There is pressure, especially on niche companies that engaged in practices that are not sustainable. We are making the products we sell and have an integrated global price chain. We invest in products, R&D, people, and cap ex. Some critics said we were investing too much. We are showing we made the right investments and will see growth acceleration going forward.

Does you guidance imply doubling your y/y growth rate for rest of year? We remain completely on track to reach guidance. Q3 typically is our seaonally highest quarter. We will see new product launches and volume growth of established products, offset by pricing erosion.

Epipen competition? The bar to get an AB rated product is very high. BX appears to have taken theirs off the table until 2017. We continue to invest in Epipen. Also, our Epipen inventory levels are very much in line with needs, contrary to some market models.

New treasuary rule effects? We see no effects on Mylan. We would like to see the tax code in the U.S. become globally competitive.

Do you think the U.S. generic sector will come under pressure to consolidate? Yes, also from a global perspective. The dynamics have changed. Our customer base has consolidated. We plan to continue to participate. It is easy for us to bolt on acquisitions to our global platform. It took us ten years to get here, to a truly global scale.

We are well beyond being about any one product or launch. We are launching large numbers of products around the world each year. We are on track to launch our new insulin products.

Generic Advair trial just 18+ years? Our study is in line with FDA guidance. There is no under 18 bridging study planned. Will not have an official 6-month exclusivity period.

Cash flow? We have some timing issues around inventory and product launches, but nothing out of the ordinary.

There has been confusion among investors and Washington between specialty drugs and generics, and between the practices of individual companies. 88% of drug volume in the U.S. is now generic. You need to look at the business models of the individual generics companies. We believe Mylan leads that space.

We are looking forward to the FDA getting caught up on their backlog, where we have a disproportionate number of products waiting for approval.

Meda manufacturing? Vertical integration means we are manufacturing our finished dosage form. We are capable of many dosage forms. This allows us to control our own destiny. Just as with the Merck business, we will look at the individual Meda products. They do little manufacturing, their products are mostly in-licensed.

OpenIcon Analyst Conference Summaries Main Page

Search

More Analyst Conference Pages: