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Mylan (MYL) Beats on Q4 Earnings, Stock Up on Strong View

Zacks Equity Research

Shares of Mylan N.V.’s MYL were up 7.2% after the company beat expectations in the fourth-quarter 2016 and provided a strong outlook for 2017 amid challenging conditions.

The company reported fourth-quarter 2016 earnings of $1.57 per share beating the Zacks Consensus Estimate of $1.41 and up from $1.22 reported in the year-ago quarter. 

We note that shares of Mylan have performed better than the Zacks categorized Medical-Generic Drugs industry in the past year with the stock losing 1.9% compared with the industry’s decline of 22.8%.

Revenues in the reported quarter came in at $3.27 billion beating the Zacks Consensus Estimate of $3.18 billion. The top line also improved 31% year over year on the back of acquisitions and new product launches.

Effective Oct 1, 2016, the company has expanded its reportable segments due to the acquisition of Meda and the integration of the portfolio across branded, generics and over-the-counter platforms in all of the regions. The company will report results in three segments on a geographic basis – North America, Europe and Rest of the World.

Quarter In Detail

North America segment third party net sales came in at $1.57 billion, up 22% due to contribution from the acquisitions of Meda AB and the non-sterile, topicals-focused business of Renaissance Acquisition Holdings, LLC along with net sales from new products which more than offset the negative impact of lower pricing and reduced volumes of existing products due to increased competition.

Third party net sales from Europe came in at $927.4 million, up 50%, propelled by the acquisition of Meda and sales from new products along with higher volumes on existing products were partially offset by lower pricing. Unfavorable foreign currency translation had an impact of 4% within Europe.

Rest of World segment third party net sales of $729.2 million was up 28% fueled by the Meda acquisition along with net sales from new products. Moreover, net sales from existing products increased marginally as higher volumes offset lower pricing throughout the region, including the anti-retroviral franchise. Foreign currency translation had a favorable impact of 3% in the Rest of the World segment.

Adjusted gross margin grew up to 57% from 56% in the year-ago quarter.

2016 Results

Revenues came in at $11.08 billion, up 18% from 2015 and beat the Zacks Consensus Estimate of $11.0 billion. Earnings per share were $4.89 in 2016 up 14% from $4.30 in the prior year and easily beat the Zacks Consensus Estimate of $4.74.

2017 Outlook

Mylan expects revenues between $12.25 billion–$13.75 billion in 2017. The Zacks Consensus Estimate of $12.64 billion is also in line.

The company projects earnings in the range of $5.15–$5.55 per share for 2017, while the Zacks Consensus Estimate is pegged at $5.31.

Mylan N.V. Price and EPS Surprise

 

Mylan N.V. Price and EPS Surprise | Mylan N.V. Quote

Our Take

Mylan’s fourth-quarter results easily beat expectations both in terms of the top-and bottom line driven by incremental contribution from the Meda acquisition and the non-sterile, topicals-focused business of Renaissance Acquisition Holdings which more than offset the impact of competitive pricing.

The results should somewhat relieve the wary investors who have been thoroughly disappointed in 2016. Mylan has been under immense pressure since Aug 2016 when the company faced criticism for the price increase of EpiPen since its acquisition of the drug in 2007 from lawmakers, consumers and the common people alike. The pricing controversy even led to a congressional hearing and attracted immense censure.

Also, right after the pricing issue, Mylan made it to the headlines for wrongly classifying EpiPen as a generic product in the Medicaid Drug Rebate Program. The misclassification implied that Mylan has been greatly underpaying rebates to Medicaid for the drug for a long time than it would have if the drug was classified as a branded one.

The guidance for 2017 surely comes as a silver lining in the clouds. The FDA has accepted the company’s abbreviated new drug application for generic version of asthma drug GlaxoSmithKline’s GSK Advair Diskus. The agency has also accepted biologics license application for a biosimilar version of Amgen’s AMGN Neulasta (pegfilgrastim) and a biosimilar version of Roche’s RHHBY Herceptin. A positive respone from the agency will boost investor confidence.

Zacks Rank & Key Picks

Mylan currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same space is GlaxoSmithKline, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GlaxoSmithKline’s earnings estimates increased from $2.66 to $2.76 for 2017 and from $2.80 to $2.85 for 2018 over the last 30 days. The company posted a positive earnings surprise in three of the four trailing quarters with an average beat of 11.03%. Its share price increased 6.7% year to date.

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