Analyst Conference Summary

generic pharmaceuticals

conference date: February 28, 2018 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2017 (fourth quarter, Q4)

Forward-looking statements

Overview: Strong revenue v. Q3, but still down 1% y/y. Strong guidance.

Basic data (GAAP):

Revenue of was $3.24 billion, up 8% sequentially from $2.99 billion, and down 1% from $3.27 billion in the year-earlier quarter.

Net income was $244.3 million, up 177% sequentially from $88.3 million, and down 41% from $417.5 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.46, up 188% sequentially from $0.16 and down 41% from $0.78 year-earlier.

Guidance:

For the full year 2018 Mylan expects revenue between $11.75 and $13.25 billion. Adjusted gross margin 55.0% to 56.5%; R&D as % of revenue 5% to 6%; SG&A as % of revenue 17.5% to 20.0%. Adjusted EBITDA 4.0 to $4.5 billion. Adjusted net income $2.7 to $2.9 billion. Non-GAAP EPS $5.20 to $5.60. Cap Ex $300 to $500 million. Non-GAAP tax rate 17.5% to 19.0%. Average diluted shares outstanding 520 to 525 million.

Conference Highlights:

Mylan CEO Heather Bresch commented: "We're anticipating a strong financial performance in 2018, with revenues of $11.75 billion to $13.25 billion, representing year-over-year growth of approximately 5% at the midpoint, and adjusted EPS in the range of $5.20 to $5.60, representing year-over-year growth of approximately 18% at the midpoint. As important, we look forward to continuing to lead the charge to break down barriers to access to affordable medicine around the world."

"Adjusted EPS fell 7% compared to 2016, as we absorbed a decline in profitability of approximately $500 million associated with the rebasing of EpiPen, while adjusted free cash flows grew more than 20% year over year, to $2.63 billion."

Rajiv Malik, President of Mylan, said "2018 will be a year of execution, including our expectation of significant launches such as generic Advair in the U.S. and pegfilgrastim, our first biosimilar launch in the U.S., insulin glargine in Europe and hundreds more across the globe. We will continue to execute integration activities to further optimize our cost structure. At the same time, we will be strategically reinvesting in our business, especially in areas such as sales and marketing and lifecycle management of several global key products."

Full year 2017 price erosion came in at high-single digits as expected. Will no longer release this figure, for competitive reasons.

Mylan's Glatiramer (generic version of Copaxone) is now available in the U.S. and Europe, and receiving 18% of new prescriptions. Progress is being made in the rest of the biosimilar program. Generic Humira may launch in Europe later this year. Insulin glargine could launch in Europe in 2H 2018; under review at FDA. Still working on biosimilar Advair with FDA.

Announced agreement to bring a biosimilar Botox to market.

Revenue by geography: North America $1.30 billion, down 17% y/y. Europe $1.07 billion, up 16% y/y, mainly from the Meda acquisition. Rest of world $816 million, up 12% y/y.

Non-GAAP numbers: EPS $1.43, up 30% sequentially from $1.10, and down 9% from $1.57 year-earlier. Net income $765.3 million, up 30% sequentially from $589.7 million, and down 9% from $842.2 million year-earlier. Gross margin was 55.5%. The main difference between GAAP and non-GAAP results was $469 million in purchase accounting and related items.

EBITDA was $962.2 million, up 24% sequentially from $776.9 million, and up 10% from $878.5 million year-earlier. Adjusted EBITDA was $1,123 million, up 22% sequentially from $923.8 million, and down 7% from $1,212 million year-earlier.

Cash and equivalents balance was $292 million, down sequentially from $615 million. Long Term Debt was $12.87 billion, down sequentially from $14.0 billion. Cash flow from operations was $490 million GAAP, or about $900 million adjusted [my calculation]. Debt repayment program was accelerated. Full 2017 $2.9 billion adjusted cash flow.

Cost of sales was $1.94 billion, leaving gross profit of $1.29 billion. Operating expenses of $874 million consisted of: research and development $202 million; selling general and administrative $659 million; $13 million litigation. Leaving income from operations of $421 million. Interest expense was $128 million, and other income was $35 million. Income tax was $83 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.

Will hold an investor event on April 11 in New York City.

For the full year 2017 revenue was $11.91 billion. GAAP net income $696 million; non-GAAP $2.44 billion. GAAP EPS $1.30; non-GAAP $4.56.

Q&A:

Botox program, timeline? Will give more details including estimated timeline on April 11.

2018 adjustment to cash flow? In 2017 we had large adjustments to cash flow, including the DOJ payment. We don't see such large adjustments in 2018.

Biosimilar Humira timeline? Could potentially launch in October 2018.

FDA slowdown? Thinks 2017 was about normal, when you consider seasonality, which is slow in January with a dash in December. We are seeing more transparency with the complex products from the FDA.

Capital deployment and EPS range in 2018? In Q1 we completed the $1 billion share buyback program. We are not looking at making a large acquisition, but could make product additions with our large cash flow.

Can you make 2018 guidance without the big launches planned? Over the last 8 weeks we have gotten continuous feedback from the FDA on Advair, seeing to concerns to the launch date. As in the past, we take a practical approach to the probability of our launches, which is why we give a range.

Great growth particularly in Italy and Australia. Great opportunity in UK and Germany and others. Also Brazil, China, and Russia, although on a small base. We are building our salesforce in countries like Russia. In 2017 profitability expanded outside the U.S.

Flat y/y North American sales, despite presumed launches? It takes the launches and competition and price changes into consideration. We no longer give expectations for particular products.

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