Mylan Reports Third Quarter 2017 Results and Updates 2017 Guidance

11/6/17

Mylan N.V. (NASDAQ, TASE: MYL) today announced its financial results for the quarter and nine months ended September 30, 2017.

Third Quarter 2017 Financial Highlights

  • Total revenues of $2.99 billion, down 2% compared to the prior year period
    • North America segment third party net sales of $1.17 billion, down 22%; and down approximately 6% excluding the decrease in sales of the EpiPen® Auto-Injector of $245.1 million
    • Europe segment third party net sales of $1.04 billion, up 24%
    • Rest of World segment third party net sales of $743.3 million, up 9%
  • U.S. GAAP diluted earnings per ordinary share ("U.S. GAAP EPS") of $0.16, up 170% over the prior year period.
  • Adjusted diluted earnings per ordinary share ("adjusted EPS") of $1.10 in line with our expectations, down 20% over the prior year period.
  • U.S. GAAP net cash provided by operating activities for the nine months ended September 30, 2017 of $1.57 billion, down 8% compared to $1.70 billion in the prior year period.
  • Adjusted free cash flow for the nine months ended September 30, 2017 of $1.91 billion, up 13% compared to $1.69 billion in the prior year period.
  • Mylan is not providing forward looking guidance for U.S. GAAP reported financial measures or a quantitative reconciliation of forward-looking non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information.

Mylan CEO Heather Bresch commented, "Our third quarter results, which included adjusted EPS of $1.10, were especially strong considering the ongoing challenges we experienced in the U.S., including accelerated deceleration of EpiPen sales - both from our launch of an authorized generic as well as the contraction of the overall epinephrine auto-injector market.

"Our third quarter results also continue to show the durability of our resilient global platform, where we now believe that approximately 75% of our more-than-$2 billion adjusted operating cash flows stems from more predictable, recurring revenues across all markets around the world.

"As impressive, we recently received approval from the U.S. Food and Drug Administration of our Glatiramer Acetate product. Being first to market with the 40-mg strength - as well as offering the 20-mg strength - is a milestone because it underscores our scientific, regulatory and commercialization capabilities for this very complex product; it also paves the path for the many other complex products we have in our pipeline.

"Given that, and the stability of our global platform, we see a strong finish ahead for the year. As a result, we are increasing the low end of our adjusted EPS guidance range, where we now expect to generate between $4.45 and $4.70 per share.

"We also see sustainable momentum globally as we head into the new year, which is why we remain confident in our 2018 target of at least $5.40 in adjusted EPS."

Mylan President Rajiv Malik said, "We continue to see the benefits of our geographic, product, channel and pipeline diversification as well as the integration of Mylan.

Malik continued: "We also continue to see the strength of our science, especially as it relates to complex products, and we now believe Mylan is well-positioned to deliver on future opportunities. The submission of Insulin Glargine in the U.S., which currently is under active review with FDA; our continued work with FDA on generic Advair; and our progress with several of our biosimilar programs are great opportunities for us to bring additional value to our shareholders as we continue to execute on our promising complex product pipeline."

Mylan CFO Ken Parks added, "We are pleased with our continued strong adjusted free cash flow generation of $1.9 billion for the first nine months of 2017. This strength reflects our stable and durable cash flow profile and provides us with the opportunity to continue to reduce debt levels, while at the same time allowing for financial flexibility as we continue to execute on our business strategy and maintain our commitment to an investment grade credit rating."

Third Quarter 2017 Financial Results

Total revenues were $2.99 billion in the third quarter of 2017, compared to $3.06 billion in the prior year period. Third party net sales for the current quarter were $2.96 billion compared to $3.03 billionfor the prior year period, representing a decrease of $73.2 million, or 2%. The incremental impact on third party net sales from the acquisition of Meda AB (publ) ("Meda") totaled approximately $163.6 million. Below is a summary of third party net sales in each of our segments for the three months ended September 30, 2017:

  • Third party net sales in the North America segment totaled $1.17 billion, a decrease of $333.3 million or 22% from the prior year period. Third party net sales were negatively impacted in the current quarter due to a decline in sales of existing products as a result of lower pricing and volume, partially offset by new product introductions. As anticipated, our North American generics business experienced higher price erosion than previous quarters, including the impact of the loss of market exclusivity of armodafinil. Sales of the EpiPen® Auto-Injector declined in the current quarter by $245.1 million as a result of the impact of the launch of the authorized generic, higher governmental rebates as a result of Mylan agreeing to the terms of a $465 millionsettlement, plus interest, with the U.S. Department of Justice and other government agencies related to the classification of the EpiPen® Auto-Injector for purposes of the Medicaid Drug Rebate Program (the "Medicaid Drug Rebate Program Settlement"), and increased competition. The impact of foreign currency translation on current period third party net sales was not significant.
  • Partially offsetting the decrease in North America was third party net sales growth in the Europesegment of $199.6 million, or 24%, in the quarter. Third party net sales in Europe totaled $1.04 billion in the current quarter. The increase was primarily the result of the incremental net sales from the acquisition of Meda, which totaled approximately $117.2 million, new product introductions and favorable volume and pricing on existing products. The favorable impact of foreign currency translation on current period third party net sales was $45.5 million or 5% within Europe.
  • Third party net sales in the Rest of World segment totaled $743.3 million in the current quarter, an increase of $60.5 million, or 9%. This increase was primarily driven by incremental net sales from the acquisition of Meda which totaled approximately $38.2 million. In addition, net sales were positively impacted by new products and increased net sales in emerging markets, which were driven primarily by higher volumes. These increases were partially offset by lower pricing and volumes on existing products from our anti-retroviral ("ARV") franchise, including active pharmaceutical ingredients. The favorable impact of foreign currency translation was $6.2 million, or 1%.

Gross profit was $1.18 billion and $1.28 billion for the third quarter of 2017 and 2016, respectively. Gross margins were 39% and 42% in the third quarter of 2017 and 2016, respectively. Gross margins were negatively impacted in the current quarter by lower gross profit from the sales of existing products in North America, including the EpiPen® Auto-Injector, partially offset by lower purchase accounting amortization as a result of the prior year amortization of the step-up in the fair value of acquired inventory. Adjusted gross profit was $1.57 billion and adjusted gross margins were 53% for the third quarter of 2017 compared to adjusted gross profit of $1.74 billion and adjusted gross margins of 57% in the prior year period. Adjusted gross margins were negatively impacted in the current quarter as a result of lower gross profit from the sales of existing products in North America, partially offset by the contributions from acquired businesses and new product introductions.

R&D expense decreased slightly from the comparable prior year period due to lower expenditures related to the Company's respiratory programs due to the timing of clinical activities, partially offset by the incremental impact of the Meda acquisition.

SG&A expense increased from the comparable prior year period primarily due to the additional expense related to the incremental impact of the Meda acquisition, partially offset by lower acquisition related costs, including consulting and legal costs, and the benefit of integration activities in the current quarter.

Litigation settlements and other contingencies, net decreased from the prior year period primarily as a result of the prior year litigation charge for the Medicaid Drug Rebate Program Settlement and the Company's settlement with Strides Arcolab regarding substantially all outstanding regulatory, warranty and indemnity claims (the "Strides Settlement") related to the acquisition of Agila Specialties Private Limited.

U.S. GAAP net earnings increased by $208.1 million to $88.3 million for the three months ended September 30, 2017, compared to a loss of $119.8 million for the prior year period and U.S. GAAP EPS increased from a loss per share of $0.23 in the prior year period to $0.16 in the current quarter. Adjusted net earnings decreased to $589.7 million compared to $726.4 million for the prior year period. Adjusted EPS decreased to $1.10 from $1.38 in the prior year period.

Cash Flow

Net cash provided by operating activities was $1.57 billion for the nine months ended September 30, 2017 compared to $1.70 billion for the prior year period. Capital expenditures were approximately $156.4 million for the nine months ended September 30, 2017 compared to approximately $239.5 million for the comparable prior year. Adjusted net cash provided by operating activities was $2.06 billion for the nine months ended September 30, 2017 compared to $1.93 billion for the prior year period. Adjusted free cash flow, defined as adjusted net cash provided by operating activities less capital expenditures, was $1.91 billion for the nine months ended September 30, 2017, compared to $1.69 billion in the prior year.

Guidance

Primarily as a result of the launch of generic Copaxone, Mylan is increasing the midpoint of its previous 2017 Adjusted EPS guidance and total revenue range by increasing the low end of the ranges. Mylan now expects 2017 total revenues in the range of $11.75 billion to $12.5 billion, which represents an increase of 9% at the midpoint versus full-year 2016. As discussed in the "Non-GAAP Financial Measures" section below, Mylan is not providing forward looking guidance for U.S. GAAP reported financial measures or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure. For 2017, Mylan continues to expect to generate $2.0 billion to $2.4 billion of adjusted free cash flow, net of our revised capital expenditures range of $300 million to $350 million. Adjusted EPS for 2017 is now expected to be in the range of $4.45 to $4.70 per share, a decrease of 6% at the midpoint when compared to the prior year.

About Mylan

Mylan is a global pharmaceutical company committed to setting new standards in healthcare. Working together around the world to provide 7 billion people access to high quality medicine, we innovate to satisfy unmet needs; make reliability and service excellence a habit; do what's right, not what's easy; and impact the future through passionate global leadership. We offer a growing portfolio of more than 7,500 marketed products around the world, including antiretroviral therapies on which more than 40% of people being treated for HIV/AIDS globally depend. We market our products in more than 165 countries and territories. We are one of the world's largest producers of active pharmaceutical ingredients. Every member of our more than 35,000-strong workforce is dedicated to creating better health for a better world, one person at a time. Learn more at Mylan.com. We routinely post information that may be important to investors on our website at investor.mylan.com.

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