Analyst Conference Summary

generic pharmaceuticals

conference date: February 26, 2019 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2018 (fourth quarter, Q4)

Forward-looking statements

Overview: Revenue continues to disappoint, but sequentially up. Good 2019 guidance.

Basic data (GAAP):

Revenue of was $3.08 billion, up 8% sequentially from $2.86 billion, and down 5% from $3.24 billion in the year-earlier quarter.

Net income was $51.2 million, down 71% sequentially from $176.7 million, and down 79% from $244.3 million year-earlier.

Earnings Per Share (EPS), diluted, were $0.10, down 71% sequentially from $0.34 and down 78% from $0.46 year-earlier.

Guidance:

Full year 2019 revenue $11.5 to $12.5 billion, up 5% y/y at the midpoint. Adjusted EPS in the range of $3.80 to $4.80, down 6% y/y at the midpoint. Adjusted free cash flows between $1.9 and $2.3 billion. Intends to repay $1.1 billion in debt during the year.

Global pricing trends are expected to be similar to 2018 (downward).

Conference Highlights:

Mylan CEO Heather Bresch commented: "Our 2018 results were strong, especially in light of the fact that we had lower than expected uptake on generic Copaxone and did not receive our generic Advair approval, demonstrating once again the resiliency of our business model. We adapted quickly and strategically to market conditions, while at the same time remained a leader for the generics industry and an advocate for changes to the current structural issues in the U.S. healthcare system that hinder access to generics. Looking forward, I can confidently say, through leveraging the diversification across our commercial, operational and scientific platforms, we feel incredibly positive about our ability to deliver a strong top-line financial performance in 2019. Specifically, we expect to generate total revenues of between $11.5 billion and $12.5 billion, reflecting top-line growth across all three of our geographic segments."

Increasing SG&A spend in 2019, which will hurt EPS, but be good for the long run. Aiming for more income from more complex, higher to duplicate products.

Mylan's generic equivalent of Advair was approved in February 2019. Tradename is Wixela Inhub. New drugs for 2019 are almost all launched, including generic Copaxone and Yupelri, with new product revenue expected of abut $1 billion.

For the full year 2018 revenue was $11.4 billion, down 4% y/y. GAAP EPS $0.68. Non-GAAP EPS $4.58. Free cash flow $2.34 billion. Cap ex $252 million. Adjusted cash flow $2.97 billion. Adjusted free cash flow $2.71 billion. Reduced debt by $630 million.

Rajiv Malik, President of Mylan, said "We're pleased with our results from 2018 and continue to be extremely proud of our scientific achievements over the past year. In 2019, you can expect us to move our portfolio and pipeline up the value chain, invest organically in our key brands and execute on our impressive commercial assets around the world. We anticipate growth of more than $1 billion in new launches, nearly all of which have already been approved, and which reflects a heavier weighting on specialty and complex generic products aligned with the evolution of the pharmaceutical industry." Some of the 2018 revenue drop was from Mylan's rationalizing its portfolio [dropping less profitable drugs].

Believes will eventually get biosimilar approvals and traction in the U.S. market.

CFO Ken Parks said "Mylan continued to generate strong cash flow with more than $2.7 billion of adjusted free cash flow for 2018, an increase of $86 million compared to the prior year and above the high-end of our initial guidance range for 2018. 2018 adjusted free cash flow conversion was healthy at approximately 115 percent of adjusted net earnings of $2.4 billion, another measure of the strength and durability of the cash flow generating capabilities of our business. In 2019, we remain committed to deleveraging and intend to repay at least $1.1 billion of debt during the year. We also remain fully committed to maintaining our investment grade credit rating."

Revenue by geography: North America $1.19 billion, down 9% y/y from $1.30 billion. Europe $1.09 billion, up 2% from $1.07 billion y/y. Rest of world $851 million, up 4% y/y from $816 million.

Non-GAAP numbers: EPS $1.30, up 4% sequentially from $1.25, and down 9% from $1.43 year-earlier. Net income $670 million, up 3% sequentially from $648.0 million, and down % from $765 million year-earlier. EBITDA was $841 million, Adjusted EBITDA $1,006 million. Gross margin 54.6%, down from 55.5% year-earlier.

Cash and equivalents balance was $388 million, down sequentially from $449 million. Long Term Debt was $13.2 billion, down slightly sequentially from $13.3 billion. Cash flow from operations was $not stated million GAAP, or about $ million adjusted. Capital expenditures were $not stated million. Adjusted free cash flow $not stated million. See above for full year cash flows.

Cost of sales was $2.06 billion, leaving gross profit of $1.02 billion. Operating expenses of $783 million consisted of: research and development $149 million; selling general and administrative $633 million; $1 million litigation benefit. Leaving income from operations of $233 million. Interest expense was $135 million, and other expense was $21 million. Income tax was $26 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. Working on a botox biosimilar with a partner.

Mylan remains committed to reducing its debt. No debt matures soon. Goal is 3.0 debt to adjusted EBITDA. Ended Q4 at 3.8.

Q&A summary:

Increase in SGA in 2019 details? We are shifting our portfolio from commodity generics to specialty and complex products. That requires ongoing investment to maximize. For the new drugs we have to invest in sales prior to getting the revenue ramp. We still are keeping it to 21% to 22%, which is better than peers. This is for long-term growth, not just q/q.

Taxes? Mylan had a minor negative impact in 2018 taxes, while most U.S. companies had a favorable impact. 2019 tax rate should be near the 2018 tax rate.

Strategic committee unlocking value? They are nearing completion of their review.

Wide range of earnings guidance? It reflects the volatility we have seen in the market. Our opportunities with new drugs are significant, but hard to predict. We are starting to see better pull through with Copaxone and Advair equivalents. We have one of the largest complex product pipelines out there, the SGA expense will help prepare for that. Some of the spend is ramping up advertising for products globally.

We think our price decline in north america could be in mid-single digits, but that is an average of three different market segments. New product launches can offset that erosion.

$1 billion in new products? Includes some 2018 launches. 3/4 is in north america, the rest is evenly split between EU and rest of world. Wixela will be a significant contributor.

We are expanding the Advair sales force. It is made in a dedicated facility.

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