Importance Of Restasis To Mylan
Mylan has become synonymous with its EpiPens auto injector used to defend against allergic reactions caused by food, insect bites and stings. The company has come under attack by lawmakers for price-gouging in the product. A generic version of EpiPens is now on the market, hurting Mylan’s total revenue and margins. In Q3 the company generated revenue of $3.0 billion, down 2% Y/Y. The decline in EpiPens sales was slightly offset by the acquisition of Meda.
The lion’s share of Mylan’s revenue comes from generics. The generics market, particularly North America, has been marked by a diminution in pricing power. Large customers are using their leverage to negotiate lower prices. The FDA is also streamlining approvals of generics which also helps keep pricing in check. Mylan is now more dependent upon new drug launches. The U.S. dry eye market is $1.8 billion; it represents a large pool of customers and an opportunity for Mylan to jumpstart its top line growth.
Importance Of Restasis To Allergan
The pains Allergan has gone through to protect Restasis is indicative of how important the drug is. At 9% of revenue it is Allergan’s second-largest product behind Botox. It also represents 12% of total income. Allergan’s Q3 top line growth of 11% was driven by acquisitions. On an apples-to-apples basis I estimate its organic growth is dead. With debt/run-rate EBITDA at 4.0x it may be difficult for Allergan to take on more debt for acquisitions. Per my previous article I estimated a loss of exclusivity (“LOE”) could cause combined EBITDA for Estrace and Restasis to fall by $774 million (over 70%).
Assuming no decline in EBITDA margin, run-rate EBITDA would fall to $322 million. The total decline in run-rate EBITDA would exceed expected cost savings (up to $400 million) from laying off 1,000 people. The potential hit to Allergan’s top line and EBITDA from LOE could crush AGN’s image as a growth stock. Any deterioration in Allergan’s credit metrics could also draw attention from the rating agencies.
