It has been a rough ride for investors of pharmaceutical giant Mylan NV (MYL, Financial). Shares are down 11% off the back of a disappointing fourth-quarter earnings report that came out after the market closed on Tuesday.
The drop itself follows a weak year-over-year performance - since March 2018, the stock is down around 34%. Currently trading at $27 per share and with a market cap of $13.9 billion, the company has certainly seen better days. Is this an opportunity to buy a solid biotech that just happens to be down on its luck, or should investors stay away?
Missing expectations
For the fourth quarter of fiscal 2018, Mylan reported total revenue of $3.08 billion, down 5% year over year. GAAP earnings for the quarter came in at $51.2 million, or 10 cents per share, representing a decline of 78%, although this was chalked up to restructuring charges and costs. Adjusted earnings clocked in at $1.30 per share, which still missed analyst expectations of $1.35 and represented a year-over-year decrease of 9.1%.
With numbers like this, it’s not difficult to see why the market’s reaction has been so negative. In an attempt to soften the blow, CEO Heather Bresch shared the following remarks:
"Our 2018 results were strong, especially in light of the fact that we had lower than expected uptake on generic Copaxone and did not receive our generic Advair approval, demonstrating once again the resiliency of our business model. We adapted quickly and strategically to market conditions, while at the same time remained a leader for the generics industry and an advocate for changes to the current structural issues in the U.S. healthcare system that hinder access to generics.
Looking forward, I can confidently say, through leveraging the diversification across our commercial, operational and scientific platforms, we feel incredibly positive about our ability to deliver a strong top-line financial performance in 2019. Specifically, we expect to generate total revenues of between $11.5 billion and $12.5 billion, reflecting top-line growth across all three of our geographic segments”.
Generic competition
A big issue for many large biotechnology companies has been the proliferation of generic and biosimilar products in the U.S. market as patents expire. Mylan has leaned into this trend by becoming a leading manufacturer of these replacement drugs, initiating partnerships with a number of smaller biosimilar developers. In particular, the company has recently succeeded in bringing generic versions of Copaxone (a treatment for multiple sclerosis originally developed by Teva (TEVA, Financial)) and Advair (a treatment for asthma and chronic obstructive pulmonary disorder, originally developed by GlaxoSmithKline (GSK, Financial)) to market.
However, as noted in the statement from the earnings call above, uptake for Copaxone was less than expected, and Advair was late in securing Food and Drug Administration approval. Analysts will be watching carefully for signs of improving sales for the former, and for news on the progress of the latter. Competition among generics and biosimilars is intense, so the element of time is of special importance in this crowded space.
Summary
Overall, this is definitely an underwhelming quarter for Mylan. While management is clearly upbeat about the company’s prospects for 2019, the market clearly has its doubts. Only time will tell whether Mylan will be able to make up for lost sales of its recently approved generics. Until then, sentiment around the company is likely to remain negative.
Disclosure: The author owns no stocks mentioned.
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