Note: This report contains substantially new material. Subsequent reports will have changes highlighted.
Reason for Report: 4Q17 Earnings Update With New Reports
Prev. Ed.:Jan 28, 2018; 3Q17 Earnings (broker materials considered till Dec18)
Brokers’ Recommendations: Positive: 58.8% (10 firms); Neutral: 41.2% (8);Negative: 0% (0) Prev. Ed.: 9; 8; 0
Brokers’ Target Price: $48.35 (↑$0.41 from the last edition; 17firms) Brokers’ Avg. Expected Return: 21.3%
*Note: Though dated Apr 10, 2018, share price and broker material are as of Apr 6, 2018
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
Portfolio Manager Executive Summary
Mylan is a global pharmaceutical company with a well-established generics business as well as a presence in the specialty pharmaceuticals space. The company’s business model includes the development, manufacturing and marketing of branded and generic drugs as well as active pharmaceutical ingredients (APIs) in North America, Europe and Rest of World. Mylan has been focused on acquisitions to drive growth. In Aug 2016, Mylan acquired Swedish drug manufacturer, Meda, in a deal valued at $9.9 billion. Further, in Jun 2016, it acquired the non-sterile, topicals-focused specialty and generics business of privately held Renaissance Acquisition Holdings for about $1 billion.
Of the 18 firms rating the stock,10 firms (58.8%) assigned positive ratings and8 firms (41.2%) rendered neutral ratings. None of the firms were negative on the stock.
Positive outlook (10/18 firms): The bullish firms believe that Mylan’s generics business will continue to drive growth on the back of acquisitions and product launches. Mylan has a strong pipeline of generics and insulin/ biosimilars, which are likely to more than offset continued high single digit-based generics erosion. Mylan will continue to make progress with generic Copaxone (as it continues to gain share) and has potential large market generic opportunities with potential approvals in 2018 for generic Advair and of Restasis. The balance sheet also looks strong allowing share buy backs and smaller bolt-on acquisitions to expand its geographic and/or therapeutic product area offerings.
Neutral outlook (8/18 firms):These firms believe Mylan faces another potential headwind should a generic A/B rated EpiPen emerge in 2018. Moreover, the generic sector is in a rapid margin-declining environment and caution is warranted.
Apr 10, 2018
Overview
Mylan N.V. is a global pharmaceutical company with a well-established generics business as well as a presence in specialty pharmaceuticals. The company’s business model includes the development, manufacturing and marketing of branded and generic drugs as well as APIs. Notably, the company has one of the world’s largest API operations.
Mylan has been making prudent acquisitions and inking strategic deals to drive long-term growth. In Feb 2015, the company acquired Abbott Laboratories’ non-U.S. developed markets’ specialty and branded generics business. Further, in Nov 2015, it acquired certain female health care businesses of Famy Care. Other previous transactions like the acquisitions of Agila Specialties, Merck KGaA’s generics and specialty pharmaceutical business, Bioniche Pharma and Pfizer’s respiratory delivery platform, have augmented the company’s diversified product portfolio and expanded its range of capabilities.
In Jun 2016, Mylan acquired the non-sterile, topicals-focused specialty and generics business of privately held Renaissance for about $1 billion.Further, in Aug 2016, Mylan acquired Swedish drug manufacturer, Meda, in a deal valued at $9.9 billion.
The company’s website address is
The firms have identified the following factors for evaluating an investment in Mylan:
Key Positive Arguments / Key Negative ArgumentsMylan’s Generics segment has been performing well, driven by new product launches. Moreover, a growing generic portfolio and an encouraging branded drugs suite will help the company sustain growth. / The decline in EpiPen sales continue to impact the top line.
The biosimilars pipeline also continues to progress well. A partnership with Biocon, and collaborations with Momenta and Mabion has helped Mylan develop a wide portfolio of biosimilar/insulin analog generic products. / Mylan is witnessing pricing pressure in several markets. Moreover, the company’s dependence on its generics business for growth is concerning.
Mylan has been making prudent acquisitions and inking strategic deals, which the firms view as a major positive. / The generics market is highly crowded and Mylan faces stiff competition from companies like Teva, Endo, Dr. Reddy’s, Mallinckrodt and Novartis’ generic arm Sandoz, among others.
Note: The company’s fiscal year coincides with the calendar year.
Jan 28, 2017
Long-Term Growth
Mylan is one of the leading generic drug companies in terms of both total and new prescriptions. The company enjoys a strong position in the U.S., which is the world’s largest generic market. The company should continue benefiting from the large number of high-value branded drugs that are scheduled to go off patent in the next few years. Mylan’s generics pipeline should also benefit from the upcoming patent expiries. Further, the company is pursuing first-to-file opportunities, which should help it maintain a strong position in the global generics market. Mylan is also exploring the market of biosimilars.
Mylan has been active on the deal signing and acquisition front to drive long-term growth. In Feb 2015, the company acquired Abbott Laboratories’ non-U.S. developed markets’ specialty and branded generics business. Through the acquisition, it was able to significantly expand and strengthen its product portfolio in Europe, Japan, Canada, Australia and New Zealand. Further, in Nov 2015, the company acquired certain female health care businesses of Famy Care. This acquisition was in line with Mylan’s strategy of strengthening its women’s health care portfolio as well as focusing on the lucrative emerging markets.
Other previous transactions include the acquisitions of Agila (strengthened Mylan’s presence in the high potential generic injectables market), Merck KGaA’s generics and specialty pharmaceutical business (expanded the global footprint), Mylan India (gave significant presence in India) Bioniche Pharma (entry into the North American injectable drugs market and also boosted Mylan’s pipeline) and Pfizer’s respiratory delivery platform. All these buyouts augmented the company’s diversified product portfolio and expanded its range of capabilities.
In Jun 2016, Mylan acquired the non-sterile, topicals-focused specialty and generics business of privately held Renaissance for about $1 billion. In Aug 2016, Mylan acquired Swedish drug manufacturer, Meda, in a deal valued at $9.9 billion. Moreover, the acquisition of the Renaissance topicals business, when combined with the Meda buyout, is expected to position Mylan as a leader in dermatology. Mylan now boasts a portfolio of more than 2,700 products.
Meanwhile, the company is collaborating with Theravance Biopharma for the development and, subject to FDA approval, commercialization of revefenacin (phase III) for the treatment of chronic obstructive pulmonary disease (COPD) and other respiratory diseases. In May 2017, Mylan presented additional efficacy and safety data from two pivotal phase III studies evaluating its key late-stage pipeline candidate, revefenacin (TD-4208). The presentation was made at the American Thoracic Society (ATS) International Conference. Revefenacin is an experimental once-daily nebulized long-acting muscarinic antagonist, which is being developed for the treatment of chronic obstructive pulmonary disease (COPD).
Mylan is also exploring the market of biosimilars, encouraged by its potential to grow to $20 billion in 2020. A partnership with Biocon, and collaborations with Momenta and Mabion has helped Mylan develop a portfolio of broad biosimilar/insulin analog generic products, representing a total brand market value of more than $75 billion in worldwide sales.Mylan now has about 21 insulin/ biosimilars programs in its pipeline, with the most recent additions including Humira for the EU, Botox, Aranesp, Toujeo, and Perjeta.
In addition, Mylan has announced restructuring programs in certain locations in an attempt to streamline its operations globally as it focuses on the integration of acquired businesses. The company expects to cut less than 10% of its global workforce, marking the first step in a series of actions.
Jan 28, 2017
Target Price/Valuation
Rating DistributionPositive / 58.8%↑
Neutral / 41.2%↓
Negative / 0.0%
Avg. Target Price / $48.35↓
High / $59.00
Low / $36.00↓
No. of Analysts with Target Price/Total / 17/18
Risks to the target price include: Delay in the launch of generics in the United States. and EpiPen pricing scrutiny.
Recent Events
Mylan Q4 Earnings Surpass Estimates, Revenues Miss–Feb 28
Mylanreported mixed results for fourth-quarter 2017 as EpiPen sales declined. Adjusted earnings of $1.43 per share beat the Zacks Consensus Estimate of $1.41 but was down from $1.57 reported in the year-ago quarter.
Fourth-quarter revenues of $3.24 billion missed the Zacks Consensus Estimate of $3.27 billion and were down 1% from the prior-year period.
Quarter in Detail
The company posts results in three segments on a geographic basis namely North America, Europe and Rest of World.
North America segment’s third-party net sales came in at $1.30 billion, down 17% on a sales decline of existing products as a result of lower volume and pricing, partially offset by contribution from new products.
The generics business in North America experienced higher price erosion than the previous quarters including the impact of the loss of market exclusivity of olmesartan and olmesartan HCTZ.
Sales of the EpiPen Auto-Injector plunged significantly (a decrease of $131.9 million) due to effect of the launch of authorized generic and higher governmental rebates.
Third-party net sales from Europe were $1.07 billion, up 16%. This was propelled by new product introductions across the region combined with volume expansion and pricing on existing products. Favorable foreign currency translation had an impact of 9% within the continent.
Rest of World segment’s third-party net sales of $815.7 million was up 12%, driven by new products and increased net sales from the anti-retroviral franchise and higher sales in the emerging markets plus a favourable foreign currency translation had an impact of 3%.
Adjusted gross margin contracted to 55.5% from 56.6% in the year-ago quarter due to lower gross profit from the sales of existing products in North America including the EpiPen Auto-Injector, partially offset by the contributions from new products.
During 2017, Mylan repurchased approximately 12.4 million shares for approximately $500.2 million under its previously approved share repurchase program. In January 2018, Mylan bought back additional ordinary shares worth 9.8 million for approximately $432.0 million and completed that share buyback program.
2017 Results
Revenues for 2017 came in at $11.91 billion, up 8% from 2016. However, the top line missed the Zacks Consensus Estimate of $11.95 billion. While adjusted EPS of $4.56 was down 7% from 2016 but surpassed the consensus mark of $4.54.
2018 Outlook
Mylan expects revenues of $11.75-$13.25 billion in 2018. The Zacks Consensus Estimate of $12.64 billion is well within the guidance provided by the company.
Mylan anticipates adjusted EPS of around $5.20-$5.60 in 2018 while the Zacks Consensus Estimate is pegged at $5.34.
Revenue
Total revenue was $3.24 billion in 4Q17, down 1% y/y.Third party net salescame in at $3.19billion, down 1%. The Zacks Digest average sales for 4Q17 were in line with the company’s report.
2018 Outlook:Mylan expects revenues of $11.75-$13.25 billion in 2018.
Revenue($ in million) / 4Q16A / 2016A / 1Q17A / 2Q17A / 3Q17A / 4Q17A / 2017A / 2018E / 2019E
Digest Average / $3,267.8 / $11,076.9 / $2,719.5 / $2,962.2 / $2,987.1 / $3,238.9 / $11,907.7 / $12,448.4 / $12,999.7
Digest High / $3,267.8 / $11,076.9 / $2,719.5 / $2,962.2 / $2,987.1 / $3,238.9 / $11,907.7 / $12,484.0 / $13,028.0
Digest Low / $3,267.8 / $11,076.5 / $2,719.5 / $2,962.2 / $2,987.1 / $3,238.9 / $11,907.7 / $12,412.7 / $12,971.3
Segment Discussion
Mylan report results on a geographic basis under the three following segments: (1) North America, (2) Europe and (3) Rest of World.
North America
Third party net sales fromNorth Americawere$1.30 billionin 4Q17, down 17%as sales were negatively impacted in the current quarter due to a decline in sales of existing products as a result of lower volume and pricing. The generics products in the United States experienced price erosion than previous quarters, including the impact of the loss of market exclusivity of olmesartan and olmesartan HCTZ. Sales of the EpiPen Auto-Injector declined in the current quarter as a result of the impact of the launch of the authorized generic, higher governmental rebates as a result of Mylan agreeing to the terms of a$465 millionsettlement.
Europe
Net sales fromEuropewere$1.07billionfor the quarter, up 16% driven by new product introductions across the region combined with favorable volume and pricing on existing products.The favorable impact of foreign currency translation on current period third party net sales was approximately$87.4 million.
Rest of World
Third party net sales fromRest of Worldwere$815.7 millionfor the quarter, an increase of 12% was primarily due to driven by new products and increased net sales from our anti-retroviral ("ARV") franchise and higher sales in emerging markets, which were driven primarily by higher volumes. The favorable impact of foreign currency translation was$25.1 million, or 3%.
Recent Product Approvals/Launches/Pending Approvals
On Mar 20, Mylan announced the launch of the oncology drug Mitomycin for Injection USP, 5 mg/vial, 20 mg/vial and 40 mg/vial Single Dose Vials, a generic version of the Bristol Myers Squibb's Mutamycin in the United States.
On Feb 28, Mylan and Revance Therapeutics, Inc. announced a global collaboration and license agreement for the development and commercialization of a proposed biosimilar to Botox, a market-leading neuromodulator approved for the treatment of multiple indications and usage in the United States with additional approvals globally.
On Feb 20, Mylan announced that the receipt of tentative approval from the FDA for its New Drug Application for Dolutegravir, Emtricitabine, and Tenofovir Alafenamide Tablets, 50 mg/200 mg/25 mg. The approval was granted approval under the U.S. President's Emergency Plan for AIDS Relief (PEPFAR).
On Jan 29, Mylan and partner Theravance announced that the new drug application (NDA) for their pipeline candidate, revefenacin (TD-4208), has been accepted by the FDA for treatment of adults with chronic obstructive pulmonary disease (COPD). A response from the regulatory body is expected on Nov 13, 2018. Rrevefenacin is an experimental once-daily nebulized long-acting muscarinic antagonist (LAMA) therapy for COPD.Theravance and Mylan had entered into a development and commercialization agreement for revefenacin back in February 2015. Under the contractual terms, the companies will co-develop revefenacin for COPD and other respiratory diseases. While Theravance will lead the U.S. registration development program, Mylan will be responsible for the product’s commercial manufacturing. Theravance submitted the NDA to the FDA for revefenacin in November 2017 for the aforementioned indication. The NDA submission was supported by positive data from two replicate pivotal phase III efficacy studies and a single 12-month, open-label, active comparator safety trial. In October 2016, the company reported positive data from both the phase III trials. The programs met the primary endpoints, demonstrating statistically significant improvements over placebo after 12 weeks of dosing, each comprising 88 mcg of revefenacin once daily and 175 mcg once daily, respectively.Significantly, the company initiated a phase IIIb study last March, evaluating revefenacin on patients with low peak inspiratory flow rate. Data from the study is likely to be out by early 2018.
EpiPen Pricing Issues: Mylan has been under pressure since August 2016 when the company came under the spotlight for price increase of EpiPen since its acquisition of the drug in 2007, drawing immense flak from lawmakers, consumers and the common people alike. Introduction of the authorized generic EpiPen in December 2016 was one of several initiatives announced by the company in its efforts to counter negative publicity related to the price hike issue, which also included changes in EpiPen access programs like raising the savings card program from $100 to $300, and doubling the eligibility of the patient assistance programs.
In September 2016, a couple of U.S. congressional committee members raised questions regarding Mylan’s payments to Medicaid for EpiPen. It was found that Mylan had wrongly classified EpiPen as a generic product in the Medicaid Drug Rebate Program, which led to the company largely underpaying rebates to Medicaid for a long time than it would have if the drug was classified as a branded one.
As a result, in October 2016, Mylan agreed to pay $465 million to the DoJ and other government agencies in an effort to settle the disputes regarding the misclassification of EpiPen. In Aug 2017, Mylan announced that its subsidiaries, Mylan Inc. and Mylan Specialty L.P., have signed an agreement with the U.S. Department of Justice (DOJ) and two other relators. The agreement finalizes the Medicaid drug rebate settlement worth $465 million, announced in Oct 2017.The settlement resolves claims which relates to the classification of EpiPen Auto-Injector and EpiPen Jr Auto-Injector for purposes of the Medicaid Drug Rebate Program. DOJ wanted to ascertain whether EpiPen products were properly classified with the Centers for Medicare and Medicaid Services as a non-innovator drug under the applicable definition in the Medicaid Rebate statute. The drugs were subjected to the formula which is used to calculate rebates to Medicaid for such drugs. The settlement provides for resolution of all potential Medicaid rebate liability claims by the federal government, as well as potential claims by certain hospitals and other covered entities that participate in the 340B Drug Pricing Program. Moreover, Mylan will reclassify EpiPen Auto-Injector for purposes of the Medicaid Drug Rebate Program and pay the rebate applicable to innovator products, effective Apr 1.
Biosimilars
Mylan is also exploring the market of biosimilars because of its potential to grow to $20 billion in 2020. A partnership with Biocon, and collaborations with Momenta and Mabion has helped Mylan develop a portfolio of 16 biosimilar/insulin analog generic products, representing a total brand market value of more than $75 billion in worldwide sales. The Biocon partnership includes six programs including the biosimilar versions of Neulasta, Humira, Avastin, Enbrel and Neupogen and three insulin analogs (Lantus, Humalog and NovoLog). Out of these, quite a few programs are in phase III development. The companies also plan to seek FDA approval for Neulasta. Mylan has already launched its biosimilar version of Herceptin in India and other emerging markets.