Generic drugmaker Mylan’s last quarterly report was marked by poor financial results and other discouraging developments, leading many investors to worry that the sky was falling, according to Leerink analyst Ami Fadia.
But like Chicken Little in the famous folk tale, they seem to have been wrong.
Mylan’s MYL, +16.13% third-quarter results, which included a profit beat, sent the company’s shares up 16% on Tuesday and spurred a turnaround in Wall Street sentiment. Tuesday’s move marked the stock’s second-largest percentage increase in five years.
“Bigger picture, we see recent weakness in MYL as overdone,” said J.P. Morgan analyst Chris Schott. “We see Mylan as one of the better-positioned players in the space with a number of longer-term growth drivers in place (biosimilars, the pending genetic Advair approval, a significant ex-US business).”
Read our previous coverage: Mylan stock drops 3% after wipeout of a second quarter
In the latest quarter, Mylan earnings rose to $176.7 million, or 34 cents per share, from $88.3 million, or 16 cents per share in the year-earlier period.
The company reported an adjusted earnings-per-share beat — $1.25, above the FactSet consensus of $1.19 — but was notably facing down “very low expectations,” J.P. Morgan’s Schott said.
It also had a revenue miss, or $2.86 billion as compared with the FactSet consensus of $2.90 billion, and maintained 2018 guidance, a relief for many analyst who had expected cuts.
See: Mylan earnings double, stock gains despite revenue miss
Third-quarter results stand in sharp contrast with Mylan’s second-quarter earnings, which included profit and revenue misses and cuts to 2018 guidance. Until Tuesday’s rise, Mylan shares had dropped roughly 20% over the last quarter.
Mylan still has problems, including potential health violations found by the Food and Drug Administration at its Morgantown, West Virginia plant. Mylan said it has been working to make changes, at a cost of just under $100 million in the latest quarter. But that has led to a “temporary disruption” in supply of certain products and, notably, the issue doesn’t yet seem to be resolved.
For a long time, Mylan has argued that it is undervalued because investors don’t appreciate how strong its business is outside of the U.S.
Generic drugmakers like Mylan have struggled with competition and pricing pressure in America in recent years, but more than half of the company’s business is actually outside of the U.S., Chief Executive Heather Bresch has previously said.
That idea came to a peak last quarter, when Mylan’s board said it would be pursuing alternatives for the business as a result.
Analysts now seem to be coming around.
“We see Mylan’s highly-diversified business as an important differentiator given ongoing U.S. generic pressures,” J.P. Morgan’s Schott said, adding that this should insulate the company more than other U.S.-focused generic drugmakers.
The company also expects to make progress on paying down its debt by the end of 2019, as well as on another goal: Its new generic of the asthma medication Advair, which could be approved soon.
Whenever that happens, it “will be high value product for a long time,” said EvercoreISI analyst Umer Raffat.
Mylan shares have dropped 13.9% year-to-date, compared with a 2.5% rise in the SPDR S&P Pharmaceuticals ETF XPH, +0.56% and a 3.1% rise in the S&P 500 SPX, +0.63%
