Mylan’s Perrigo Backup Plan
Mylan investors are focused on a possible deal for Perrigo, but guidance for the existing business is encouraging.
The possibility of acquiring Perrigo continues to occupy Mylan shareholders. But the generic-drug maker’s stand-alone portfolio deserves a little more attention.
In reporting second-quarter results Thursday, Mylan bumped its full-year adjusted earnings guidance to a range of $4.15 to $4.35 a share from $4 to $4.30. Perhaps what is most interesting is what isn’t included in that figure.
Mylan said its full-year guidance assumes that generic competition for its top selling EpiPen treatment will begin in the year’s second half. That is obviously bad news: The specialty drug segment, comprised primarily of EpiPen, accounted for $302 million in second-quarter revenue, or about 13% of the total.
That guidance, though, didn’t include a new product that could drive the top line higher. This is a generic version of the multiple sclerosis treatment Copaxone that Mylan is planning.
While it is unclear when Mylan’s product will launch, there is clearly a big opportunity here. Teva Pharmaceutical Industries reported second-quarter Copaxone sales in excess of $1 billion.
So management is possibly being overly conservative in its guidance, should the new product take market share. That is especially good news seeing as the possibility of a Perrigo deal falling through is a very real one.
“We like Perrigo, but we don’t have to have Perrigo.” Mylan chief Heather Bresch said on the earnings call. Ms. Bresch also reiterated that Mylan is committed to maintaining its investment-grade rating, suggesting it is unlikely to increase its offer of $75 in cash and 2.3 Mylan shares for each share of Perrigo.
After the sharp selloff in the wake of Teva dropping its bid for Mylan last month, Mylan’s debt adjusted market value is about 10.9 times forward estimates of earnings before interest, taxes, depreciation and amortization. That is above Mylan’s five-year average. It is, though, well below that of Perrigo and on par with Teva.
At the lower price, Mylan’s risk-reward equation is improving. That is something investors should be able to deal with.