Mylan NV (MYL, Financial) might be a good case study for MBA candidates on how not to run a company.
Students would probably find many of the company’s moves comical, but investors aren't laughing. Mylan is one of the worst-performing Dow stocks this year. And since April 2015, shares of the Pittsburgh-based generic pharmaceutical giant have lost 75% of their value. That was about the time Mylan rejected Teva Pharmaceutical’s (TEVA, Financial) offer to buy the company for $82 a share.
Wouldn’t Mylan love to have a do-over? At the time, Executive Chairman Robert Coury summarily dismissed the Teva offer because he said it undervalued Mylan. According to an article in the Pittsburgh Gazette, he also characterized Teva as being “dysfunctional and poorly run.” Today, it’s clear that was a case of the pot calling the kettle black.
In retrospect, Mylan and Teva might have made perfect bedfellows. Teva shares have plummeted to a 19-year low and now trade at just more than $9. And both companies are the subject of a 47-state antitrust suit that alleges they, as well as a number of other generic companies, colluded to fix prices. According to an article in FiercePharma, UBS analysts said in May that Mylan could face fines in the $500 million to $2 billion range. The company is also facing lawsuits for its alleged involvement in the opioid crisis.
Mylan’s problems run deeper than that, though. The company recently reported disappointing results once again. For the latest quarter, Mylan had loss of $25 million, or a loss of 5 cents per share, compared with a profit of $87.1 million, or 17 cents per share, a year ago. Adjusted earnings were 82 cents per share, above the FactSet consensus of 79 cents.
Revenue fell 7% to $2.68 billion from $2.5 billion, missing the FactSet consensus of $2.69 billion. Sales in North America fell 6% to $922.9 million, while revenue in Europe declined 14% to $895.3 million. Sales from the rest of the world rose 3% to $642.4 million.
Some of the company’s problems are due to the business it’s in. The ability of generic manufacturers to raise prices has become difficult because of increased competition. And one of Mylan’s biggest sellers, the EpiPen, is facing stiff competition from a Teva substitute.
There is a spate of good news. Mylan expects new drugs it launches to generate revenue of $1 billion in 2019. But, according to an article in Yahoo Finance, one analyst said this is too little, too late and essentially declared “game over."
“Even in this case with quality launches, it is still not enough,” Cowen analyst Ken Cacciatore wrote. “We would avoid.”
So far, Mylan management hasn’t said anything about its plans to right the ship. That probably came as no surprise to Jefferies health care trading desk strategist Jared Holz, who called the company’s executives “the worst ever.”
Union pension fund adviser CtW Investment Group would undoubtedly agree. Reuters reported last week that CtW said it advised company shareholders to vote against the four director nominees, who are on the board's nominating and governance committee.
The adviser is asking for something called a “claw back,” which would include the return of executive pay for management misconduct. One example of malfeasance is the company paying Coury nearly $1 million for not using the corporate jet.
CtW said it was opposing the re-election of the proposed directors because of what it views as "a serious disregard for the rights of Mylan shareholders."
If there’s a life preserver for Mylan and its shareholders, it might be a breakup of the company or a sale. A buyout is possible but unlikely, although last September one analyst said he could see a private firm purchasing the company. Of course, that was before it was plagued by the series of serious issues it faces today. On the other hand, a buyout would be much cheaper now.
In early May, it was reported by Intercomonia.com that the Carlyle fund is negotiating financing to launch a takeover of Mylan. If that occurs, you can bet many of the company’s top executives will be sent packing.
Disclosure: The author holds no positions in any of the companies mentioned in this article.
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