Mylan N.V.’s (MYL - Free Report) third-quarter 2016 earnings of $1.38 per share missed the Zacks Consensus Estimate of $1.50 and declined 3% from the year-ago quarter, reflecting significant contribution from new products in the prior-year period.
In the third quarter, Mylan booked a $465 million charge related to the settlement with the U.S. Department of Justice (DOJ) and other government agencies regarding the classification of its lifesaving auto-injector, EpiPen, for purposes of the Medicaid Drug Rebate Program. Including this charge and other one-time items, Mylan incurred a loss of 23 cents per share in the third quarter of 2016.
We remind investors that Mylan has been facing immense criticism for the massive price hike of EpiPen in the recent years from lawmakers, consumers and the common people alike. The EpiPen pricing controversy even led to a congressional hearing.
Revenues in the reported quarter came in at $3.06 billion, falling short of the Zacks Consensus Estimate of $3.23 billion. However, the top line improved 13% year over year on the back of acquisitions and new product launches.
Acquisitions Boost Generics, EpiPen Hits Specialty
Generics third-party net sales, derived from North America, Europe and the Rest of the World, surged 17% to $2.61 billion. Segmental third-party net sales inched up 1% to $1.10 billion in North America. The upside in sales was driven by the acquisitions of Meda (Aug 2016) and the non-sterile, topicals-focused business from Renaissance Acquisition Holdings (Jun 2016), and to a lesser extent, by new products launches, partially offset by lower pricing and lower volumes of existing products due to increased competition.
Third-party net sales from the European markets surged 38% to $842 million on the back of net sales from the Meda acquisition, and to a lower extent, net sales of new products. Unfavorable foreign currency translation had an impact of 1% within Europe. Adjusted third-party net sales in Europe increased 34%.
Third-party net sales from the Rest of the World soared 25% to $670 million, reflecting incremental net sales from the Meda acquisition primarily in emerging markets, and to a lesser extent, net sales of new products. Additionally, net sales of existing products improved marginally, as higher volumes offset lower pricing throughout the region, including the anti-retroviral (ARV) franchise. Sales within the ARV franchise improved gradually throughout the quarter as HIV tender volumes rose. Foreign currency translation had a favorable impact of 5% in the Rest of the World.
However, third-party net sales at the Specialty segment slipped 4% to $418.7 million, reflecting lower volumes due to the timing of wholesaler purchases of EpiPen in anticipation of an upcoming authorized generic launch. Mylan plans to launch a generic version of EpiPen in the first half of Dec 2016 at a list price of $300.
Adjusted gross margin during the third quarter of 2016 shrank to 57% from 58% in the year-ago quarter.
2016 Outlook Intact
Mylan has reiterated its outlook for 2016, which it had provided in early Oct 2016. The company expects earnings in the range of $4.70–$4.90 per share, while the Zacks Consensus Estimate is pegged at $4.81.
We note that Mylan had significantly cut its 2016 earnings outlook from the previous guidance of $4.85–$5.15 per share. The company attributed the lowered earnings guidance largely to the changes in EpiPen access programs, which included increasing the savings card program from $100 to $300, doubling the eligibility of the patient assistance program and the upcoming launch of a generic EpiPen.
Meanwhile, Mylan continues to target earnings of $6.00 per share in 2018, with growth anticipated in the low teens in both 2017 and 2018.
The company is also still anticipating price erosion in the mid-single digits through the rest of the year.
Change in Reporting Segments
Mylan also announced that 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 World.
DOJ Probe Revealed
In a 10-Q filing, Mylan provided details about the DOJ investigation into the pricing of generic drugs. The company revealed that its subsidiary as well as certain employees and a member of senior management received subpoenas from the DOJ in Sep 2016, seeking additional information relating to the marketing, pricing and sale of its four generic products – cidofovir, glipizide-metformin, propranolol and verapamil. They are also investigating into whether competitors of such products colluded on price.
Since last week, rumors have been rife that the DOJ is investigating into several generic drug makers for price collusion.
MYLAN NV Price, Consensus and EPS Surprise
Zacks Rank & Stocks to Consider
Mylan is a Zacks Rank #4 (Sell) stock. Some better-ranked stocks in the health care sector include Exelixis, Inc. (EXEL - Free Report) , Infinity Pharmaceuticals, Inc. (INFI - Free Report) and Anika Therapeutics Inc. (ANIK - Free Report) . While Anika sports a Zacks Rank #1 (Strong Buy), Infinity and Exelixis carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Anika’s earnings estimates increased from $1.96 to $2.06 for 2016 and from $2.03 to $2.09 for 2017 over the last 60 days. The company has posted a positive surprise in all of the four trailing quarters with an average beat of 33.14%. Its share price has gained 14% year to date.
Infinity’s loss estimates narrowed from $3.84 to $3.79 for 2016 over the last 60 days. The company has posted a positive surprise in all of the four trailing quarters with an average beat of 67.62%.
Exelixis’ loss estimates narrowed from 71 cents to 54 cents for 2016 and from a loss of 16 cents to earnings of 4 cents for 2017 over the last 60 days. The company has posted a positive surprise twice in the trailing four quarters with an average beat of 38.52%. Its share price has skyrocketed above 100% year to date.
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