Mylan’s Growth Is Dead

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Mylan CEO Heather Bresch. Source: Houston Chronicle

Mylan reported Q4 revenue of $3.2 billion and eps of $1.43. The company missed on revenue by $60 million, but beat on earnings. The stock was flat after the earnings announcement. I had the following takeaways on the quarter.

Growth Is Dead

Mylan’s total revenue of $3.2 billion was off 1% Y/Y. This was not a shock. Teva’s (TEVA) Q4 revenue was off 16% Y/Y and its core generics business was also off by 16%. Large clients have been consolidating and using their heft to negotiate lower prices for generic drugs. The FDA has expedited its drug approval process which has hurt prices of existing drugs. Generic drug makers appear caught in the middle, particularly in North America, and it may not subside any time soon.

Mylan’s Q4 results were a tale of three regions. North America revenue was off 17% Y/Y. The region was plagued by lower volumes and lower pricing on existing products, including EpiPen auto-injector. Sans a $132 million decline in EpiPen sales, the North America revenue decline would have been 8%. This is still better than Teva’s performance in the region. Until EpiPen sales trough it could be tough sledding for Mylan.

Europe revenue growth was driven by new product sales and higher volumes from Durable Global Key Brands. It was also aided by the acquisition of Meda AB, a specialty pharmaceutical company located in Sweden. Meanwhile, revenue from the rest of the world (“ROW”) was up 12% due to acquisitions and higher volumes from Mylan’s ARV Franchise which is use for the treatment of HIV/AIDS.

If you removed the negative impact of EpiPen sales and the positive impacts from acquisitions, one could get a better picture of Mylan’s revenue growth. North America still controls 41% of total revenue and 57% of total segment profits. Its segment profit margins were 53% during the quarter, versus 29% for Europe and 26% for ROW. As North America revenue continues to fall Mylan’s profit margins will likely fall with it. In the near time, growth in revenue and segment profits appears dead.

Mylan Is Delivering On New Products

Despite a lack of growth Mylan is delivering on new products. In Q4 2017 the FDA approved a generic version of Copaxone – Teva’s blockbuster multiple sclerosis drug. I understand the formula for Copaxone was extremely complex and difficult to replicate. Not only did Mylan win FDA approval, but the approval came several months earlier than expected. Prior to generic Copaxone entering the market Teva generated quarterly revenue of nearly $1 billion at EBITDA margins north of 80%. In my opinion, this was a major coup for Mylan.

Mylan has been locked in high-profile patent battle with dry-eye drug Restasis. Restasis generates annual revenue of $1.4 billion and controls the lion’s share of the $1.8 billion U.S. dry-eye market. A federal court invalidated the Restasis patents due to “obviousness.” Only an inter partes review (“IPR”) and FDA approval stand in the way of bringing generic Restasis to market. Mylan is working towards a target action date of July 2018.

Mylan is also partnering with Revance (RVNC) to create a biosimilar to rival Allergan’s Botox. Revance’s RT002 neuromodulator has shown promise in clinical trials. Botox generates about $800 million in quarterly revenue and controls over 75% of the global botulinum toxin market. The fact that Revance would rather partner with Mylan than go it alone likely speaks to Mylan’s proven ability to bring complex drugs to market, and its deeper pockets to fund the endeavor.

That said, these are examples of Mylan’s ability to launch new products and replicate highly-complicated drugs currently on the market. It will need to stay hungry in order to offset EpiPen’s decline.

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