Mylan's Disappointing Outlook Rattles Analysts, Investors

Mylan NV MYL reported disappointing fourth-quarter earnings Tuesday and forecast an earnings shortfall for 2019.

The Analysts

BMO Capital Markets analyst Gary Nachman maintained an Outperform rating on Mylan shares and reduced the price target from $44 to $40.

Cantor Fitzgerald analyst Louise Chen reiterated a Neutral rating and $41 price target.

Wells Fargo Securities analyst David Maris maintained an Outperform rating and lowered the price target from $40 to $33.

BMO: Higher Spending Could Drive Long-Term Growth 

Mylan projected an unexpectedly higher level of SG&A spend, leading to below-consensus 2019 EPS guidance, Nachman said in a Wednesday note.

Mylan is justified in stepping up investments behind key products, provided it can boost top-line growth, the analyst said. 

The execution  is likely to take time, he said. BMO reduced its EBITDA and EPS estimates for 2019-2023. 

Notwithstanding near-term issues, Nachman said Mylan is well-positioned to take advantage of "potential longer-term tailwinds for generics with faster FDA approvals, biosimilars and improving generic utilization ex-U.S."

The firm expects the company to deliver solid growth relative to peers.

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Cantor's Key Takeaways

Chen named the following as her key takeaways from the quarter in a Tuesday note: 

• The approval of the chronic obstructive pulmonary disease treatment Yupelri Nov. 9.
• A U.S. Court of Appeals ruling affirming the decision that Teva Pharmaceutical Industries Ltd TEVA's Copaxone 40mg/lite dosing patents are invalid.
• The U.S. launch of a generic version of Pfizer Inc. PFE's DepoProvera.
• European Medicines Agency's CHMP issuing a positive opinion recommending the approval of a Herceptin biosimilar, and the commercial launch of a Humira biosimilar in Europe.
• The announcement of a restructuring and remediation plan at Mylan's Morgantown facility.
• FDA approval for the ANDA for the generic version of Takeda's Prevacid SoluTab DR ODT.
• Mylan added generic versions to its portfolio of Allergan plc AGN's Canasa in ulcerative proctitis and Shire's Lialda for ulcerative colitis.
• The 2018 results were impacted by a lower-than-expected uptake of generic Copaxone and a lack of approval for generic Advair.

A lack of earnings visibility beyond 2019 keeps Cantor on the sidelines, the analyst said. 

"We could still become more constructive on the stock if new product opportunities were to exceed expectations and/or U.S. generic drug pricing were to improve." 

Wells Fargo Discouraged By Outlook

With Mylan suggesting on the call that it's closing in on the end of a strategic review, it may be worthwhile to see what comes of it, Maris said in a Wednesday note. 

"Given the underperformance of the shares over a long period of time and given the new earnings guidance that appears to be a big surprise to the market, we believe shareholders would welcome further structural and managerial changes," the analyst said.

SG&A spending is the variance between the guidance and the consensus with respect to 2019, Maris said. 

Wells Fargo lowered its estimates and price target for Mylan. The firm stuck with its top-notch rating given its belief that the market may already reflect the below-consensus 2019 outlook.

The Price Action

Mylan shares were down 15.06 percent at $26.01 at the close Wednesday. 

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