Mylan (MYL) — 2Q20 Update (8/9/2020)

Mylan (MYL) reported Q2 results that were fairly good — as did pending merger partner, Upjohn.

As a quick reminder, Mylan and Upjohn (the off-patent drug portfolio of Pfizer) are set to merge later this year to form a large generics + off-patent drug manufacturer.

Q2 Results

Revenue declined 4% to $2.73bn and adjusted earnings grew 8% to $574m — YTD revenue is flat and earnings are up 9%.

After a few years of the International business carrying performance, US performance is now starting to turn the corner…

image

Operating cash flow was $380m in the quarter — debt repayment has been a huge focus over the past 3.5 years as they’ve paid down nearly $3.7bn in total debt since then.

image

Upjohn Q2 performance was as planned — revenue was down 31% in total as they lap the Lyrica patent expiration that happened in July 2019 — Lyrica sales in the US were down 94% in Q2!

image
image

And Upjohn guidance was unchanged — $8-8.5bn sales and $3.8-4.2bn EBITDA

image

Valuation Update

516m shares

x $16 stock price

$8.3bn market cap

Net debt is $11.9bn

= ~$20.2bn enterprise value

Guidance calls for roughly $11.75bn in sales and $3.5bn in EBITDA — that leaves the stock currently trading at 5.8x EV/EBITDA.

image

Trailing free cash flow is $1.5bn leaving Mylan right at a 5.5x FCF multiple (also cheap).

With the pending Upjohn merger, who really cares what standalone Mylan looks like? Pro-forma for the merger:

1.21bn shares outstandingx $16 stock price$19.4bn market cap

Net debt is ~$24bn$43.4bn enterprise value

Guidance for the combined business is unchanged at about $7bn so call it 6.2x EV/EBITDA with 3.4x leverage.

Taking a lazy approach and pricing this pro-forma business similar to competitor Teva and another higher levered pharma player Baush + Lomb should yield an EBITDA multiple of 7-7.5x = $22 stock price in the near future.

Beyond that, this should be worth $36+ per share after they hit the 2.5x leverage target and near the $8bn EBITDA mark. Investors will also start receiving a 5% dividend yield after the merger is completed.

Management is certainly making the case that Mylan-Upjohn (known as Viatris) should be worth at least as much as peers…

image

Other Notes

  • Management commented this could be the final standalone Mylan earnings call, indicating the merger with Upjohn is nearing completion — Upjohn has already raised the necessary debt to complete the merger as well
  • Biosimilars (generic versions of complex drugs) are a potentially huge growth area for Mylan — recent article discussing biosimilars for Pfizer
  • Upjohn’s off-patent drug business is ridiculously profitable — close to 58% EBIT margins from 2017-2019 and in 1H 2020.
  • Here’s a link to the updated information statement regarding the merger