Forget Mylan N.V.'s Dismal Third-Quarter Results -- Its Future Is Looking Better

When Mylan N.V. (MYL) reported its second-quarter results in August, there wasn't much good news except for the positive impact from its acquisitions. The drugmaker slashed its full-year earnings guidance because of expected delays in U.S. generic drug launches.

But there was considerably more optimism in the air when Mylan's announced its third-quarter results before the market opened on Monday. Those results weren't all that great, but the company expressed confidence that its fortunes would improve in the fourth quarter and into 2018. Here are the highlights. 

Image source: Getty Images.

Mylan results: The raw numbers

Data Source: Mylan.

What happened this quarter?

Mylan's 3Q performance varied dramatically by geography. Its North American revenue, for example, fell 22% year over year to $1.17 billion. However, its European revenue of $1.04 billion was up 24%  from the prior-year period. Sales in the rest of the world climbed 9% year over year to $743.3 million.

Lower sales of Mylan's EpiPen auto-injector played a big role in the revenue decline in North America. However, that wasn't the company's only problem. Overall price erosion of generic drugs in the U.S. also presented a major headwind. In addition, Mylan felt the  impact of loss of exclusivity for its sleep-disorder drug, armodafinil.

Mylan's improved results internationally stemmed primarily from its 2016 acquisition of Swedish drugmaker Meda. The company also launched several new products in these markets that provided some sales growth.

The challenges in North America weighed heavily on Mylan's bottom line. So why did the drugmaker's GAAP net income look better than the prior-year period? In Q3 2016, Mylan's settlement of litigation caused the company to post a net loss.

One area where Mylan continued to perform well was in cash flow generation. It reported adjusted free cash flow (adjusted net cash provided by operating activities minus capital expenditures) of $1.91 billion for the nine months ending Sept. 30. During the same period in 2016, Mylan generated adjusted free cash flow of $1.69 billion.

What management had to say

Mylan CEO Heather Bresch said:

Our third-quarter results, which included adjusted EPS of $1.10, were especially strong considering the ongoing challenges we experienced in the U.S., including accelerated deceleration of EpiPen sales -- both from our launch of an authorized generic as well as the contraction of the overall epinephrine auto-injector market. Our third-quarter results also continue to show the durability of our resilient global platform, where we now believe that approximately 75% of our more-than-$2 billion adjusted operating cash flows stems from more predictable, recurring revenues across all markets around the world.

Rajiv Malik, Mylan's president, added:

We continue to see the benefits of our geographic, product, channel and pipeline diversification as well as the integration of Mylan. We also continue to see the strength of our science, especially as it relates to complex products, and we now believe Mylan is well-positioned to deliver on future opportunities. The submission of insulin glargine in the U.S., which currently is under active review with FDA; our continued work with FDA on generic Advair; and our progress with several of our biosimilar programs are great opportunities for us to bring additional value to our shareholders as we continue to execute on our promising complex product pipeline.

Looking forward

Probably the most important part of Mylan's Q3 update was its revised guidance for the full year. After slashing its outlook three months ago, this time, Mylan provided a more cheerful forecast.

Mylan now expects 2017 total revenue between $11.75 billion and $12.5 billion, which would be an increase of 9% at the midpoint. That's also higher than the full-year revenue forecast provided in August of $11.5 billion to $12.5 billion.

Adjusted earnings per share for 2017 are now projected to be between $4.45 and $4.70. Although at the midpoint of that range, the company would post a 6% year-over-year decrease, it's better than the revised guidance range it provided three months ago of $4.30 to $4.70.

What made the difference? Mylan's launch of a generic version of Teva's blockbuster multiple sclerosis drug, Copaxone. That launch, combined with other new drugs on the way, boosted Mylan's confidence as it heads into 2018. The company thinks that it will be able to achieve its goal of at least $5.40 in adjusted EPS next year. While there could still be bumps in the road ahead, Mylan appears to be on course to move past some of the overhangs of the past.