Analyst Conference Summary

generic pharmaceuticals

conference date: May 9, 2018 @ 7:00 AM Pacific Time
for quarter ending: March 31, 2018 (first quarter, Q1)

Forward-looking statements

Overview: Revenue declined substantially y/y in North America, and a bit overall. But margins and profits increased. Also so the usual Q1 seasonal dip. Non-GAAP EPS in line with expectations.

Basic data (GAAP):

Revenue of was $2.65 billion, down 18% sequentially from $3.24 billion, and down 1% from $2.69 billion in the year-earlier quarter.

Net income was $87.1 million, down 64% sequentially from $244.3 million, but up 31% from $66.4 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.17, down 63% sequentially from $0.46 and up 42% from $0.12 year-earlier.

Guidance:

Reaffirmed full year 2018 guidance. $5.20 to $5.60 adjusted EPS.

Conference Highlights:

Mylan CEO Heather Bresch commented: "Mylan's first quarter demonstrates continued execution on our long-term plan. Our diversity and durability are what allow us to absorb evolving industry dynamics and natural market volatility, while at the same time accelerate our mission of providing access to high quality medicine. Further demonstrating our commitment to access, I am pleased to share our newly released 2017 Global Social Responsibility Progress Report available at mylan.com."

We remain confident in our ability to launch new products in 2018.

Rajiv Malik, President of Mylan, said "We also continue to execute on our key pipeline programs, as outlined during our recent Investor Day, while maintaining our confidence in our ability to bring these important products to market. From an operational standpoint, we are continuing to execute on our integration activities to further optimize our cost structure, at the same time we are investing across our business in areas such as sales and marketing of several global key products."

Announced agreement to bring a biosimilar Botox to market.

Revenue by geography: North America $0.985 billion, down 19% y/y. Europe $1.04 billion, up 16% y/y, mainly from the Meda acquisition. Rest of world $627 million, up 8% y/y.

"Net sales in the North America segment totaled $985.3 million, a decrease of $229.6 million or 19% from the prior year period. This decrease was driven primarily by a $108.7 million combined decrease in the sales of branded products, including EpiPen Auto-Injector, the impact of the loss of exclusivity of olmesartan and olmesartan HCTZ and the prior year divestiture of certain contract manufacturing assets. In addition, net sales were negatively impacted by $24.6 million related to the implementation of new accounting standards. The remaining decrease was due to lower volumes, and to a lesser extent, pricing, on other existing products partially offset by new product introductions. The impact of foreign currency translation on the current period net sales was insignificant within North America."

Non-GAAP numbers: EPS $0.96, down 33% sequentially from $1.43, and up 3% from $0.93 year-earlier. Net income $495.6 million, down 35% sequentially from $765.3 million, and down 1% from $499.8 million year-earlier. Gross margin was %.

Cash and equivalents balance was $367 million, up sequentially from $292 million. Long Term Debt was $12.45 billion, down sequentially from $12.87 billion. Cash flow from operations was $622 million GAAP, or about $694 million adjusted. Capital expenditures were $31 million. Adjusted free cash flow $664 million. Executed a $1 billion bond offering at the end of the quarter. Used $432 million to repurchase shares.

Cost of sales was $1.70 billion, leaving gross profit of $984 million. Operating expenses of $829 million consisted of: research and development $205 million; selling general and administrative $608 million; $16 million litigation. Leaving income from operations of $156 million. Interest expense was $132 million, and other income was $14 million. Income tax benefit was $77 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:

Neulasta and Advair biosimilar PDUFA dates? No changes in dates or expectations. BioCon was contacted by the FDA, is addressing improvements, should not affect these two products. The FDA has also communicated with Mylan, routine, again no apparent delay.

New product expectations for rest of year? Fixation on a couple of launches is by analysts, not Mylan. There is a disconnect by analysts in appreciating our platform and growth prospects. We will launch the products and maximize them.

Growth in EU? Core markets saw double digit growth, including contributions for new products in some markets. Our global key brands led growth.

Update on capital deployment? Will be consistent. Will continue to pay down debt. With over $2 billion in cash flow we can bring in some new products, including OTC in Europe. We will continue to leverage our infrastructure by adding new products. Copaxone launch and markets like it will be slow ramps, but continue over time. Usually generics captured share quickly, with Copaxone in the U.S. it is not so fast, but we expect it to continue to grow.

Segment detail? We moved to a one Mylan approach to the market. We are not separating any dosage forms.

ARV 505b2 new products? Global franchise is doing well, up about 20% y/y. We are offering the patients a much more affordable product. Partners like Kaiser have helped us achieve penetration.

Advair is a complex product. We are not frustrated, we understand it takes time. FDA questions are very minor. The science of the program is good. We see no indication from the FDA that there would be more red flags. We are doing commercial manufacturing at this time.

We believe biosimilars will ramp faster around the globe than in the U.S., but we believe we will see a bolus of growth in the U.S. at some point.

Profit split on biosimilars? You can rely on our general guidance. [profit split on biosimilars remains a secret]

EpiPen supply disruption details? Pfizer has experienced manufacturing setbacks. Lots of misinformation out there. FDA notification is clear, there is intermittent supply but no overall shortage, but we are getting pens to everyone who needs one.

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