Scale
With $3.2 billion in quarterly revenue I believe Mylan has the scale to compete in the generics market and weather the storming of declining pricing power in North America. Its Q4 2017 EBITDA margin improved to 40% from 38% in the year earlier period, despite the decline in revenue. Management cut SG&A expense by 7%, which helped margins. It could potentially cut SG&A even further to offset future revenue declines.
Debt of $14.6 billion is only 3.8x run-rate EBITDA. Its balance sheet is strong compared to Teva’s. Teva’s $32.5 billion debt load is at 5.4x run-rate EBITDA; it will likely deteriorate further after generic Copaxone kicks in. Teva’s big idea is to actually raise prices to help service its debt load. Mylan’s stronger balance sheet could give it the flexibility to weather stable to declining prices, and potentially steal market share if clients balk at Teva’s higher prices.
Conclusion
Mylan has shown an ability to replicate complex drugs. This will serve the company well down the road. For now, growth appears dead and investors should avoid the stock.
