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Mylan (MYL) Beats on Q2 Earnings, Inks Deal with Pfizer

Zacks Equity Research

Shares of Mylan N.V. MYL are trading up after the company announced a merger deal with a Pfizer PFE unit. This overshadowed its better-than-expected second-quarter results. However, Mylan’s stock has lost 25.9% year to date compared with the industry’s decline of 5%.


The company reported adjusted earnings of $1.03 per share in the second quarter of 2019, which beat the Zacks Consensus Estimate of 95 cents but declined from $1.07 in the year-ago quarter.

Second-quarter revenues of $2.85 billion easily beat the Zacks Consensus Estimate of $2.82 billion and was up 2% from the prior-year quarter.

Quarter in Detail

The company posts results in three segments on a geographic basis — North America, Europe and Rest of World.

North America segment’s net sales came in at $1.023 billion, up 2% year over year, driven by new product sales, partially offset by lower volumes of existing products. New product sales were primarily driven by sales of Fulphila (biosimilar to Neulasta) and Wixela Inhub, the generic of GlaxoSmithKline’s GSK Advair Diskus.

Net sales in the Europe segment were $989.6 million, down by a million due to unfavorable impact of foreign currency translation and lesser extent pricing. The unfavorable impact of foreign currency translation was offset by new product sales, including Hulio and the TOBI Podhaler, and higher volumes of existing products.  

Rest of World segment’s net sales of $805.2 million were up 5% primarily driven by products sold in China and new product sales in Australia and emerging markets.

Adjusted gross margin expanded to 54% from 53% in the year-ago quarter.

2019 Guidance

The company reaffirmed its guidance for 2019. Revenues are projected between $11.5 billion and $12.5 billion. The company anticipates adjusted EPS of $3.80-$4.80. It targets to repay $1.1 billion of debt by the end of the year.

Deal with Pfizer

Concurrent with the quarterly results, Mylan announced a merger agreement with Upjohn, Pfizer's off-patent branded and generic established medicines business (includes Lipitor, Celebrex and Viagra), to create a new global pharmaceutical company.  Per the agreement, which is structured as an all-stock, Reverse Morris Trust transaction, each Mylan share would be converted into one share of the new company.

Pfizer’s shareholders would own 57% of the combined entity, while Mylan’s shareholders would own the remaining 43%. The transaction has been unanimously approved by the boards of both the companies.

The resultant will boast a diverse portfolio across many geographies and focus on key therapeutic areas. The new company is expected to generate revenues of $19-$20 billion for 2020. The combined entity will be renamed and rebranded, and led by Mylan's current chairman Robert J. Coury, who will serve as the executive chairman of the new company. 

Our Take

Mylan’s deal with Pfizer overshadowed its better-than-expected second-quarter results. The company’s results benefited from solid performance of new products like Fulphila and Wixela Inhub.

Mylan had previously undertaken a strategic review of its business due to challenging business conditions in North America and pricing pressures. The decision to merge with Upjohn comes as a result of this review.

The generic industry has been facing a difficult business environment. Players like Mylan and Teva TEVA have been under the scanner due to drug fixing issues, which led to a significant decline in the share prices of these companies. 

Hence, the deal with Pfizer should relieve battered investor sentiment as Mylan looks to turn over a new leaf and focus more on emerging markets. The combined business (EpiPen, Lipitor, Celebrex and Viagra among others) will be one of the leading generic businesses in the world.

Mylan currently carries a Zacks Rank#3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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