Analyst Conference Summary

generic pharmaceuticals

conference date: May 10, 2017 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2017 (first quarter, Q1)

Forward-looking statements

Overview: Revenue down sequentially, which was partly seasonal, and partly from lower EpiPen sales. Q1 2016 was down 13% sequentially as a seasonal comparison.

Basic data (GAAP):

Revenue of was $2.72 billion, down 17% sequentially from $3.27 billion, and up 24% from $2.19 billion in the year-earlier quarter.

Net income was $66.4 million, down 84% sequentially from $417.5 million, and up 377% from $13.9 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.12, down 85% sequentially from $0.78 and up 300% from $0.03 year-earlier.

Guidance:

Reaffirmed 2017 guidance: $5.15 to $5.55 non-GAAP EPS. 2018 goal is still $6 EPS. [Which means Mylan stock should be priced at $100 per share or more, in my opinion - WPM]

Conference Highlights:

Mylan CEO Heather Bresch commented: "We delivered year-over-year revenue growth of 24%, adjusted EPS growth of 22%, and expanded segment profitability in all three segments. These results are a true reflection of all of the great assets we have integrated, with significant contributions from acquisitions completed last year, as well as from new product launches across our business. We remain confident in our guidance and our business outlook for the full year 2017, including our adjusted EPS guidance range."

The general increase in revenue "was principally due to net sales from the acquisitions of Meda and the Topicals Business which totaled approximately $182.1 million. Partially offsetting this increase was a net decrease in net sales from new products and lower volume and pricing on existing products. In addition, sales of the EpiPen® Auto-Injector declined in the current quarter as a result of increased competition and the impact of the launch of the authorized generic."

The global pricing environment was consistent with our previous expectations: low-single digit annual decline.

EpiPen represents less than 5% of Mylan's global revenue. The overall market is growing, but competition has grown as well.

Acquisitions are exceeding expectations and providing leverage as the are integrated globally.

Mylan seeks to maintain the highest global standards of manufacturing, working closely with the FDA. The warning letters from the FDA have begun to be lifted.

Non-GAAP numbers: EPS $0.93, down 41% sequentially from $1.57, and up 22% from $0.76 year-earlier. Net income $500 million, down 41% sequentially from $842 million, and up 30% from $386 million year-earlier. Gross margin was 53%, down from year-earlier.

EBITDA was $658 million, down 25% sequentially from $879 million, and up 58% from $417 million year-earlier. Adjusted EBITDA was $812 million, down 33% sequentially from $1.21 billion, and up 39% from $584 million year-earlier.

Cash and equivalents balance was $724 million. Long Term Debt was $14.7 billion, down sequentially from $15.2 billion. Cash flow from operations was $452.9 million, up from $80.5 million year-earlier. Capital expenditures $51.8 million. Adjusted free cash flow was $477.6 million.

Cost of sales was $1.63 billion, leaving gross profit of $1.09 billion. Operating expenses of $858 million consisted of: research and development $218 million; selling general and administrative $631 million; $9 million litigation settlement. Leaving income from operations of $227 million. Interest expense was $138 million, and other expense was $17 million. Income tax was $5 million.

Sales by region: North America $1.21 billion, up 5% y/y; Europe $892 million up 53%; Rest of World $581 million up 34%. Other $32.1 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 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. 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 15 countries. Partnered with Biocon and Momenta for this. Wixela Inhub is the planned name for generic Advair for asthma and COPD, but received a complete response letter from the FDA. Mylan remains on track on all key programs. Copaxone has an action date for next month and believes all science issues have been resolved to FDA satisfaction and the facilities have been inspected.

Mylan remains committed to reducing its debt. No debt matures soon.

Q&A:

Evolving industry dynamics, Walmart consortium? No different that recent consolidation generally. It is a benefit to a company like ours, given our size and reach. Some smaller competitors cannot meet the needs of the system. We are excited to service Walmart.

Generic Advair FDA timing & discussions? Submission was done with a pre-agreed protocol. We have been asked to analyze the findings of our study against the current draft guidance for fully human studies. Until we meet with the FDA, we cannot predict an impact on timing. The product is exactly as per the protocol agreed to by the FDA.

Readiness to launch generic Copaxone? We will be ready to launch.

Was most of the North American miss EpiPen? We anticipated a big change, including the mix with the generic product. We are seeing a lot of brand loyalty. The costs of the recall is recoverable and had little impact on sales. We expect EpiPen profitability to be down $400 million y/y.

Adventis? You should here about our filing any time now.

Reiterating revenue guidance? Yes.

U.S. price declines, how do you calculate that? First to market dynamics can drive y/y volatility. We are not excluding anything in our single digits decline guidance.

Biocon products, how do you book revenue and products? It is an important partnership, we do not give the contract specifics.

We had higher run rates for Meda and Renaissance last year, is that right? We don't know about your numbers. We are breaking out the acquisition.

Trends in Europe? This is where the strategic acquisitions are paying dividends. We bolstered our number one positions in France and Italy. Meda is bringing critical mass in places like the U.K. At this time we don't see any government instituted price cuts.

New product launches this year will be heavier in the second half.

How do you decide when to walk away from unprofitable business? We have 630 products just in the U.S. We are committed to our customers, but we would evaluate if something did not make sense.

If Advair were delayed, could you make your guidance? Guidance is not dependent on approval of any one product. That is the point to giving a range.

Biosimilar neulasta timeline? End of 2018 or early 2019.

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