Analyst Conference Summary

generic pharmaceuticals

conference date: November 6, 2017 @ 7:30 AM Pacific Time
for quarter ending: September 30, 2017 (third quarter, Q3)

Forward-looking statements

Overview: Revenue down y/y, but better than expected given known EpiPen trends. Increased low end of revenue guidance for 2017.

Basic data (GAAP):

Revenue of was $2.99 billion, up 1% sequentially from $2.96 billion, and down 2% from $3.03 billion in the year-earlier quarter.

Net income was $88.3 million, down 70% sequentially from $297.0 million, but up % from negative $119.8 million year-earlier. Year-earlier saw a $558 million litigation settlement.

Earnings Per Share (EPS), diluted, were $0.16, up % sequentially from $0.55 and up % from negative $0.23 year-earlier.

Guidance:

2017 guidance now revenue $11.75 to $12.5 billion. Adjusted EPS $4.45 to $4.70. Capital expenditures $300 to $350 million. Adjusted Free Cash Flow $2.0 to $2.4 billion.

At least $5.40 in adjusted EPS still expected in 2018.

Conference Highlights:

Mylan CEO Heather Bresch commented: "Our third quarter results, which included adjusted EPS of $1.10, were especially strong considering the ongoing challenges we experienced in the U.S., including accelerated deceleration of EpiPen sales - both from our launch of an authorized generic as well as the contraction of the overall epinephrine auto-injector market. Our third quarter results also continue to show the durability of our resilient global platform, where we now believe that approximately 75% of our more-than-$2 billion adjusted operating cash flows stems from more predictable, recurring revenues across all markets around the world."

"As impressive, we recently received approval from the U.S. Food and Drug Administration of our Glatiramer Acetate product [generic Copaxone]. Being first to market with the 40-mg strength - as well as offering the 20-mg strength - is a milestone because it underscores our scientific, regulatory and commercialization capabilities for this very complex product; it also paves the path for the many other complex products we have in our pipeline.

"Given that, and the stability of our global platform, we see a strong finish ahead for the year. As a result, we are increasing the low end of our adjusted EPS guidance range, where we now expect to generate between $4.45 and $4.70 per share. We also see sustainable momentum globally as we head into the new year, which is why we remain confident in our 2018 target of at least $5.40 in adjusted EPS."

The Puerto Rican plant is operational and Mylan has not lost any business as a result of the hurricane.

Believes there is a real disconnect between the share price and Mylan's real value. Will do an investor outreach program. Will continue to invest in the pipeline and product acquisitions. Key message is "We have built Mylan to last."

Rajiv Malik, President of Mylan, said "The submission of Insulin Glargine in the U.S., which currently is under active review with FDA; our continued work with FDA on generic Advair; and our progress with several of our biosimilar programs are great opportunities for us to bring additional value to our shareholders as we continue to execute on our promising complex product pipeline." Complex products produce more reliable cash flows, so shifting to them. EpiPen is expected to be less than 3% of revenue. Rajiv went into detail on the status of biosimilar and complex product regulatory applications.

Mylan's generic version of Copaxone is getting a significant number of prescriptions already. Anticipates average y/y price declines in high single digit % in North America.

Revenue by geography: North America $1.17 billion, down 22% y/y. Europe $1.04 billion, up 24% y/y, mainly from the Meda acquisition. Rest of world $743 million, up 9% y/y. North American revenue down on lower EpiPen volumes and lower pricing on existing products. Excluding EpiPen sales, NA product revenue was down 6% y/y.

Non-GAAP numbers: EPS $1.10, flat sequentially from $1.10, and down 20% from $1.38 year-earlier. Net income $589.7 million, flat sequentially from $589.9 million, and down 19% from $726.4 million year-earlier. Gross margin was 53%.

EBITDA was $776.9 million, down 14% sequentially from $903.9 million, and up 164% from $294.7 million year-earlier. Adjusted EBITDA was $923.8 million, down 1% sequentially from $930.9 million, and down 13% from $1.06 billion year-earlier.

Cash and equivalents balance was $615 million, up sequentially from $612 million. Long Term Debt was $14.0 billion, flat sequentially from $14.0 billion. Cash flow from operations was $548.6 million GAAP, or $863 million adjusted. Capital expenditures $47 million. Adjusted free cash flow was $816 billion.

Still committed to deleveraging debt to 3.0x level, but extended loan covenants to end of 2018 at the 4.25x level (debt to EBITDA).

Cost of sales was $1.81 billion, leaving gross profit of $1.18 billion. Operating expenses of $862 million consisted of: research and development $182 million; selling general and administrative $664 million; $15 million litigation. Leaving income from operations of $316 million. Interest expense was $132 million, and other expense was $5 million. Income tax was $91 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 3.0 debt to adjusted EBITDA.

Q&A:

Uncertainty of generic market, greatest unknowns for 2018? The weaknesses laid out are North American, but we are now global. We will bring out complex products globally, so we can absorb the volatility in the generics market. We will grow as we bring new products to markets. U.S. generic headwinds expected to continue. We have taken all the possible negative things into consideration in guiding to a minimum of $5.40 EPS in 2018.

Consolidation of industry, could you buy assets? Since Meda we feel we have the assets we need. If we see bolt-on opportunities, we could pursue them. It is a buyers' market, lots of opportunities at reasonable prices. But we still want to pay down debt even as we may acquire new products.

Econ disk? Confident this can grow.

Why such good results in Europe? We saw numerous launches, none particularly large, but we expanded sales in numerous products.

Generic Advair target action date is in June. The new FDA commissioner is working to bring products to approval quicker in order to lower costs to consumers.

$5.40 to $6.00 thresholds for 2018? $5.40 is our target. We will give more detailed guidance with Q4 conference.

Restasis target action date? We had a target action date in September. We received an IR, we addressed it. We have been persevering through pretty desperate legal maneuvers on this drug that should have been on the market several years ago.

Generic U.S. pricing erosion? Full year mid-single digits, a bit choppy, was a bit worse in Q3 due to first to file products seeing competition. Seeing high-single digit erosion in 2018.

Shareholder perceptions? Do not believe it is grounded in governance. Committed to getting our their to sell our strong fundamentals. We have a strong lead over anybody else out there. Emphasized Mylan Build to Last presentation.

Copaxone launch scripts, 40 mg vs. 20 mg? We knew 40 mg made up bulk of market. We are encouraged at getting 16% of new prescriptions We have the only generic in the space, which should be an opportunity to expand.

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