Analyst Conference Summary

generic pharmaceuticals

conference date: November 5, 2018 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2018 (third quarter, Q3)

Forward-looking statements

Overview: Still struggling to get to y/y revenue growth, but profits up y/y.

Basic data (GAAP):

Revenue of was $2.86 billion, up 2% sequentially from $2.81 billion, and down 4% from $2.99 billion in the year-earlier quarter.

Net income was $176.7 million, up 370% sequentially from $37.6 million, and up 100% from $88.3 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.34, up 325% sequentially from $0.08 and up 113% from $0.16 year-earlier.

Guidance:

Remains committed to prior full-year 2018 guidance. $11.25 to $12.25 billion revenue. $4.55 to $4.90 adjusted EPS.

Conference Highlights:

Mylan CEO Heather Bresch commented: "Our confidence in the company's bright future extends well beyond any single factor or particular quarter, including the current, short-term macro market turbulence our industry is experiencing. Year-to-date, we have launched nearly 475 new products across our segments, including a record number of complex generics and biosimilars for Mylan. These medicines represent many different therapeutic categories, channels and dosage forms. We remain committed to our full-year 2018 guidance, and this confirmation is not dependent on any single product approval or launch. As we look ahead, we're very optimistic about our long-term growth prospects as we have secured almost all regulatory approvals necessary for our key 2019 product drivers around the world." Seeing continued stabilization of pricing environment in America.

Advair pending approval and other new drugs may get approvals from FDA soon.

The decrease in North American revenue y/y was from new accounting standards, lower EpiPen volumes, a loss of exclusivity on a product, and the restructuring of the Morgantown facility. Also, more from lower volume than lower pricing. New products like Fulfila (biosimilar Neulasta) helped offset declines in other products.

Rajiv Malik, President of Mylan, said "This record year of scientific accomplishments represents a significant milestone in the company's nearly 60-year history. Our recent successes demonstrate the strength of our scientific platform and our ability to manage and execute on new products, including complex generics and biologics." Morgantown restructuring is going well, but in some cases has reduced volumes of products shipped.

Believes will eventually get biosimilar approvals and traction in the U.S. market. Received a minor complete response letter for generic Advair in late June and responded in July.

CFO Ken Parks said "We intend to repay at least $1.2 billion of debt maturing through year end 2019 and remain fully committed to maintaining our investment grade credit rating."

Revenue by geography: North America $1.01 billion, down 14% y/y. Europe $1.04 billion, flat y/y. Rest of world $774 million, up 4% y/y.

On August 31, 2018, Mylan completed an agreement with certain subsidiaries of Novartis AG to purchase the worldwide rights to their global cystic fibrosis products consisting of the TOBI Podhaler and TOBI solution. Tobramycin is the standard of care for treatment of pseudomonas aeruginosa, a leading driver of infection in cystic fibrosis. Mylan expects a high barrier for generic entry. Believe will be EPS accretive.

Non-GAAP numbers: EPS $1.25, up 17% sequentially from $1.07, and up 14% from $1.10 year-earlier. Net income $648.0 million, up 17% sequentially from $551.6 million, and up 10% from $589.7 million year-earlier. EBITDA was $841.6 million, Adjusted EBITDA $925.9 million. Gross margin 55%, up from 53% year-earlier.

Cash and equivalents balance was $449 million, up sequentially from $330 million. Long Term Debt was $13.3 billion, flat sequentially from $13.3 billion. Cash flow from operations was $654 million GAAP, or about $760 million adjusted. Capital expenditures were $62 million. Adjusted free cash flow $698 million. 9-month: cash provided by operating activities was $1.71 billion; cap ex $137.4; adjusted free cash flow $2.02 billion.

Cost of sales was $1.82 billion, leaving gross profit of $1.04 million. Operating expenses of $701 million consisted of: research and development $144 million; selling general and administrative 577$ million; $20 million litigation benefit. Leaving income from operations of $338 million. Interest expense was $136 million, and other expense was $10 million. Income tax was $16 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. Ended Q3 at 3.8.

Q&A summary:

North American, Europe segment profitability drivers? It was a strong profit growth quarter. Margins improved. New product launches were the most important driver, in Europe and America. In Europe we benefitted in investments in global key brand sales from our acquisitions.

UNH? Great partnership opportunity. Humira product in Europe we are still getting tenders, we feel it is a tremendous opportunity, but too early to quantify.

Time to normalization at Morgantown? We need to rationalize just to keep pace with changing regulations. We also moved some product production to other facilities. In 2019 the restructuing will continue, but we will also rebalance the entire network.

Strategic review? The board will put out an update when ready, there is no timeframe available.

Fulfila launch? Has been targetted, we see weekly improvements. We reached 8% of the prefilled syringe market last week.

Generic copaxone share? We were not happy last quarter, but we did much better in Q3, so we are excited, but we have more work to do.

Advair formation? It will be an important product for a long period of time.

EpiPen sales? No products counting for more than 3% of revenue is correct. Can't speak to Pfizer.

Debt paydown changes? We have shown consistent improvement in working capital velocity, should continue into 2019. We got Europe onto a single ERP instance.

Gross margins? Depends on new product launching time line. But over long term we should have nice rates.

EpiPen volume decline, could it reverse in Q4? Traditionally Q3 is the highest volume quarter. Q4 will likely rebalance to its 20% of annual sales.

While EPS is important, we also are looking to drive cash so that we can reinvest and delever debt over the next few years. More when we do 2019 guidance in late February.

&npsp;

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