Mylan's Struggles Continue in the First Quarter

Mylan (MYL) reported disappointing 2018 fourth-quarter earnings results in February. The drugmaker continued to struggle in the U.S. market especially. However, Mylan provided full-year 2019 guidance that pointed to better days ahead.

The company announced its 2019 first-quarter results before the market opened on Tuesday. Unfortunately, the better days haven't arrived yet. Here are the highlights from Mylan's Q1 update.

Image source: Getty Images.

Mylan results: The raw numbers

Data source: Mylan. N/A = not applicable.

What happened with Mylan this quarter?

North American markets continued to be the primary problem spot for Mylan. The company reported net sales in North America of $922.9 million, down 6% year over year. Mylan attributed the decline to "changes in the competitive environment and the impact of the Morgantown plant remediation activities." 

The former reference pertained to significant headwinds in the U.S. generic drug market that don't appear to have stabilized yet. The Morgantown plant remediation activities related to several issues identified by the U.S. Food and Drug Administration (FDA) at Mylan's manufacturing facility in Morgantown, West Virginia. The company is conducting a major restructuring at the plant. Mylan president Rajiv Malik said in the company's fourth-quarter conference call that "no significant new product revenue is forecasted from the Morgantown plant in 2019." 

But North America wasn't Mylan's only challenge in the first quarter. European sales fell 14% from the prior-year period to $895.3 million. On a constant currency basis, the decline wasn't as bad, with revenue sliding 6% year over year. Mylan faced other issues with its European segment, though, including lower volumes of existing products resulting from the timing of purchases by customers and some temporary business disruptions stemming from the adoption of serialization -- a new method of identifying individual packs of medicine -- in Europe.

Mylan's sales in the rest of the world increased 3% year over year to $642.4 million. On a constant currency basis, sales in the rest of the world grew 11%. This growth stemmed primarily from new product sales in Australia, Japan, and China, as well as increased volume of some existing products, especially Mylan's anti-retroviral therapy franchise.

What management had to say

CEO Heather Bresch stated:

Mylan's first quarter represents a solid start to the year, and we remain positioned to reaffirm our guidance for 2019. We continue to manage an increasingly diverse portfolio of products across all three segments of our business, and given the evolution of our commercial and geographic mix see opportunities to enhance our investments for certain areas of our portfolio. In the U.S., where the industry continues to experience volatility, we are leveraging past experience and applying key learnings to our largest launches, like Wixela, even as we advocate for policies that seek to put the patient first.

Bresch added, "With that said, our top-line results fell within the range of where we thought they would be at $2.5 billion. On the bottom line, we came in ahead of where we expected at $0.82 of adjusted EPS, mainly due to gross margins coming in at the high end of our guidance range while also having some positive offsets from a timing perspective in G&A against our increased sales and marketing spend."

Looking forward

CFO Ken Parks said that Mylan was reaffirming its full-year 2019 guidance. The company continues to anticipate total revenue between $11.5 billion and $12.5 billion. Mylan also expects adjusted earnings per share between $3.80 and $4.80, with adjusted free cash flow in the range of $1.9 billion to $2.3 billion.

Parks also said that Mylan intends to pay down $1.1 billion of debt this year. This effort should help the company retain its investment-grade credit rating.

The best way for Mylan to turn things around is by launching new products. Investors will probably want to keep their eyes especially on Wixela Inhub (the company's generic version of Advair) and Fulphila (a biosimilar to Neulasta).