Add
MYL to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| MYL > SEC Filings for MYL > Form 10-Q on 3-Aug-2009 | All Recent SEC Filings |
3-Aug-2009
Quarterly Report
The following discussion and analysis addresses material changes in the results of operations and financial condition of Mylan Inc. and subsidiaries (the "Company," "Mylan" or "we") for the periods presented. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Results of Operations and Financial Condition included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2008, the unaudited interim Condensed Consolidated Financial Statements and related Notes included in Part I - Item 1 of this Quarterly Report on Form 10-Q ("Form 10-Q") and the Company's other Securities and Exchange Commission ("SEC") filings and public disclosures.
This Form 10-Q may contain "forward-looking statements." These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements about the Company's market opportunities, strategies, competition and expected activities and expenditures, and at times may be identified by the use of words such as "may", "will", "could", "should", "would", "project", "believe", "anticipate", "expect", "plan", "estimate", "forecast", "potential", "intend", "continue" and variations of these words or comparable words. Forward-looking statements inherently involve risks and uncertainties. Accordingly, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risks described below under "Risk Factors" in Part II, Item 1A. The Company undertakes no obligation to update any forward-looking statements for revisions or changes after the filing date of this Form 10-Q.
Executive Overview
Mylan is the world's third largest producer of generic and specialty pharmaceuticals, offering one of the industry's broadest and highest quality product portfolios, a robust pipeline and a global commercial footprint that spans more than 140 countries and territories. Employing approximately 15,000 people, Mylan has attained leading positions in key international markets through its wide array of dosage forms and delivery systems, significant manufacturing capacity, global scale and commitment to customer service.
Through its controlling interest in Matrix Laboratories Limited ("Matrix"), Mylan has direct access to the third-largest active pharmaceutical ingredient ("API") manufacturer in the world. This relationship makes Mylan one of only two global generics companies with a comprehensive, vertically integrated supply chain.
Mylan has three reportable segments: "Generics," "Specialty" and "Matrix," as determined in accordance with Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company also reports in Corporate/Other certain general and administrative expenses; litigation settlements; amortization of intangible assets and certain purchase-accounting items (such as the inventory step-up); non-cash impairment charges; and other items not directly attributable to the segments. The measure of profitability used by the Company with respect to its segments is gross profit, less direct research and development ("R&D") and direct selling, general and administrative ("SG&A") expenses.
Acquisition of the Remaining Interest in Matrix Laboratories Limited
On March 26, 2009, the Company announced its plans to buy the remaining public interest in Matrix from its minority shareholders pursuant to a voluntary delisting offer. At the time, the Company owned approximately 71.2% of Matrix through a wholly-owned subsidiary and controlled more than 76% of its voting rights. On June 1, 2009, Mylan announced that it had successfully completed the delisting offer and accepted the discovered price of 211 Rupees per share, which was established by the reverse book building process prescribed by Indian regulations. As of June 30, 2009, the Company completed the purchase of approximately 19% of the remaining interest from the minority shareholders of Matrix for cash of approximately $134.5 million, bringing the Company's total ownership to approximately 90% and control to approximately 95% of its voting rights. On July 31, 2009, the Company received notice of approval of the delisting application. Matrix's stock will be suspended from trading on the Bombay and National Stock Exchanges effective August 14, 2009 and will be delisted effective August 21, 2009. Minority shareholders who have not yet tendered their shares may do so during a six-month period following the
delisting. The purchase was treated as an equity transaction as required by SFAS No. 141(R), Business Combinations ("SFAS No. 141(R)"). Under SFAS No. 141(R), subsequent increases or decreases of ownership that do not result in a change in control are accounted for as equity transactions.
Termination of Joint Ventures
During the quarter ended June 30, 2009, Matrix and Aspen Pharmacare Holdings Limited ("Aspen") terminated two joint ventures in which each held a 50% share; Astrix Laboratories Limited ("Astrix") and Fine Chemicals Corporation ("FCC"). Under the agreed upon terms, Matrix sold its 50% interest in FCC to Aspen for $23.3 million. At the same time, a wholly-owned subsidiary of Mylan purchased from Aspen its 50% interest in Astrix for $38.9 million. These transactions resulted in a net gain of approximately $10.4 million, which is included in other income, net, in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009. As of the date of purchase, June 1, 2009, the results of Astrix were consolidated with those of Mylan.
The Company accounted for the acquisition of the remaining 50% of Astrix using the purchase method of accounting. Under the purchase method of accounting, the assets acquired and liabilities assumed in the transaction were recorded at the date of acquisition at the preliminary estimate of their respective fair values. The purchase price allocation is preliminary and is based on the information that was available as of the acquisition date. Management believes that the information provides a reasonable basis for allocating the purchase price, but the Company is awaiting additional information necessary to finalize the purchase price allocation. The fair values reflected in the consolidated financial statements may be adjusted, and such adjustments could be significant. The Company expects the purchase price allocation to be finalized as soon as possible but no later than one year from the acquisition date.
Biologics Agreement
On June 29, 2009, Mylan announced that it has executed a definitive agreement with Biocon Limited ("Biocon"), a publicly traded company on the Indian stock exchanges, for an exclusive collaboration on the development, manufacturing, supply and commercialization of multiple, high value generic biologic compounds for the global marketplace.
As part of this collaboration, Mylan and Biocon will share development, capital and certain other costs to bring products to market. Mylan will have exclusive commercialization rights in the U.S., Canada, Japan, Australia, New Zealand and in the European Union and European Free Trade Association countries through a profit sharing arrangement with Biocon. Mylan will have co-exclusive commercialization rights with Biocon in all other markets around the world. In conjunction with executing this agreement, Mylan recorded a non-recurring research and development charge related to its up-front, non-refundable obligation pursuant to the agreement.
Financial Summary
Mylan's financial results for the three months ended June 30, 2009, included total revenues of $1.27 billion compared to $1.20 billion for the three months ended June 30, 2008. This represents an increase in revenues of $63.9 million. Consolidated gross profit for the current quarter was $527.8 million compared to $414.2 million in the same prior year period, an increase of 27.4%. For the current quarter, operating earnings of $174.7 million were realized compared to $74.0 million for the three months ended June 30, 2008.
The net earnings attributable to Mylan Inc. common shareholders for the three months ended June 30, 2009 was $58.1 million, which translates into earnings per diluted share of $0.19. In the same prior year period, the net loss attributable to Mylan Inc. common shareholders was $16.3 million, which translates into a loss per diluted share of $0.05. A more detailed discussion of the Company's financial results can be found below in the section titled "Results of Operations".
The comparability of results between the two periods is affected by the following:
• Charges consisting primarily of incremental amortization related to purchased intangible assets and the amortization of the inventory step-up associated with the acquisition of the former Merck Generics business
of $70.1 million (pre-tax) during the three months ended June 30, 2009, compared to $112.1 million (pre-tax) in the comparable prior year period.
Mylan's financial results for the six months ended June 30, 2009, include total revenues of $2.48 billion compared to $2.28 billion for the six months ended June 30, 2008. This represents an increase in revenues of $199.3 million. Consolidated gross profit for the six months ended June 30, 2009 was $1.05 billion compared to $764.4 million in the same prior year period, an increase of 37.8%. For the six months ended June 30, 2009, operating earnings of $402.1 million was realized compared to an operating loss of $297.5 million for the same prior year period.
The net earnings attributable to Mylan Inc. common shareholders for the six months ended June 30, 2009 was $129.4 million, which translates into earnings per diluted share of $0.42. In the same prior year period, the net loss attributable to Mylan Inc. common shareholders was $462.9 million, which translates into a loss per diluted share of $1.52. A more detailed discussion of the Company's financial results can be found below in the section titled "Results of Operations".
The comparability of results between the two periods is affected by the following:
• Charges consisting primarily of incremental amortization related to purchased intangible assets and the amortization of the inventory step-up associated with the acquisition of the former Merck Generics business of $139.1 million (pre-tax) during the six months ended June 30, 2009, compared to $230.2 million (pre-tax) in the comparable prior year period;
• A non-cash impairment loss on the goodwill of the Specialty Segment of $385.0 million (pre-tax and after-tax) recorded during the three months ended March 31, 2008.
Results of Operations
Three Months Ended June 30, 2009, Compared to Three Months Ended June 30, 2008
Total Revenues and Gross Profit
For the current quarter, Mylan reported total revenues of $1.27 billion compared to $1.20 billion in the comparable prior year period. This represents an increase of $63.9 million or 5.3%. Net revenues increased $68.5 million, while other revenues decreased $4.7 million. The increase in net revenues is due to higher third-party sales in all three of the Company's segments. The Generics Segment accounted for the majority of the increase ($41.9 million) followed by the Specialty Segment ($15.8 million) and the Matrix Segment ($10.9 million). Foreign exchange translation had an unfavorable impact on total revenues, due primarily to the strengthening of the U.S. Dollar in comparison to the functional currencies of Mylan's other subsidiaries, primarily those in Europe, Australia and India. On a constant currency basis, total revenues increased by approximately 13%. See below for a more detailed discussion of each segment.
Gross profit for the three months ended June 30, 2009 was $527.8 million, and gross margins were 41.7%. For the three months ended June 30, 2008, gross profit was $414.2 million, and gross margins were 34.4%. Gross profit for the current quarter is impacted by certain purchase accounting related items recorded during the three months ended June 30, 2009, of approximately $70.1 million, which consisted primarily of incremental amortization related to purchased intangible assets and the inventory step-up associated with the acquisition of the former Merck Generics business. Excluding such items, gross margins would have been approximately 47.2%. Prior year gross profit is also impacted by similar purchase accounting related items in the amount of $112.1 million. Excluding such items, gross margins in the prior year would have been approximately 43.7%. Margin improvement was realized by each of the Company's segments, with the most significant increase due primarily to the contribution from products launched in North America subsequent to June 30, 2008. In the first quarter of 2009, Mylan launched divalproex sodium extended-release ("divalproex ER") tablets, the generic version of Abbott Laboratories' Depakote® ER. Products generally contribute most significantly to gross margin at the time of their launch, when there is limited generic competition and even more so in periods of market exclusivity, as was the case with divalproex ER for the quarter ended June 30, 2009.
Generics Segment
For the current quarter, the Generics Segment reported total revenues of $1.03 billion. Generics Segment total revenues are derived from sales primarily in or from the U.S. and Canada (collectively, "North America"), Europe, the Middle East and Africa (collectively, "EMEA") and Australia, Japan and New Zealand (collectively, "Asia Pacific").
Total revenues from North America were $533.3 million for the three-month period ended June 30, 2009, compared to $452.0 million for the three months ended June 30, 2008, an increase of $81.3 million or 18.0%. This increase is the result of revenue from products launched subsequent to June 30, 2008, and favorable volume, partially offset by unfavorable pricing. New products contributed net revenues of $112.2 million, the majority of which was divalproex ER.
Fentanyl, Mylan's AB-rated generic alternative to Duragesic®, continued to contribute significantly to both revenue and gross profit despite the entrance into the market of additional generic competition. Sales of fentanyl have remained relatively strong primarily due to Mylan's ability to continue to be a stable and reliable source of supply to the market. As is the case in the generic industry, the entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products. Competition on fentanyl in the future could continue to have an unfavorable impact on pricing and market share.
Total revenues from EMEA were $367.8 million for the three-month period ended June 30, 2009, compared to $389.8 million for the comparable prior year period. On a constant currency basis, EMEA revenues increased by approximately 10%.
Within EMEA, approximately 70% of net revenues are derived from the three largest markets: France, the U.K. and Germany. Revenues in France increased as a result of new product launches and higher volumes. Revenues in the U.K. increased over the same period in the prior year which was negatively impacted by excess supply in the market. These increases served to offset lower revenues in Germany. A number of markets in which we operate have implemented or may implement "tender systems" for generic pharmaceuticals in an effort to lower prices. Such measures are likely to have a negative impact on sales and gross profit in these markets. The German market is one that has begun to implement tender systems. Current quarter revenues in Germany were negatively impacted by the price reductions as a result of these tenders, as well as general pricing pressure on its non-tender business and the loss of exclusivity on certain Statutory Health Insurance contracts. Also contributing to EMEA's total revenues in the current quarter are sales from the Central and Eastern European businesses acquired in June 2008.
Total revenues from Asia Pacific were $127.9 million for the three-month period ended June 30, 2009, compared to $141.4 million for the three months ended June 30, 2008, representing a decrease of $13.5 million or 9.5%. The majority of revenues from Asia Pacific are contributed by Alphapharm, Mylan's Australian subsidiary, with the remainder comprised of sales in Japan and New Zealand.
On a constant currency basis, Asia Pacific revenues increased slightly. This increase is a result of increased volumes and new product launches in Australia, partially offset by unfavorable pricing which resulted from the government mandated pricing reform that took place in Australia in July of 2008. Additionally, revenues contributed by Mylan's Japanese subsidiary increased, driven by certain pro-generic measures implemented by the Japanese government and new product launches.
Certain markets in which the Company does business have recently undergone government-imposed price reductions, thereby increasing pricing pressures on pharmaceutical products. This is true in Australia as well as several European countries. Such measures, along with the tender systems discussed above, are likely to have a negative impact on sales and gross profit in these markets. However, some pro-generic government initiatives in certain markets could help to offset some of this unfavorability by potentially increasing generic substitution.
For the three months ended June 30, 2009, the segment profitability for the Generics Segment was $309.9 million compared to $226.3 million in the prior year comparable period. This increase is the result of higher revenues and gross profit, mainly from North America, as well as lower R&D expense as discussed below.
Specialty Segment
For the current quarter, the Specialty Segment reported total revenues of $129.9 million, of which $122.8 million represented third-party sales, compared to total revenues of $116.0 million in the same prior year period, of which $105.9 million represented third-party sales. The Specialty Segment consists of Dey, which focuses on the development, manufacturing and marketing of specialty pharmaceuticals in the respiratory and severe allergy markets. The most significant contributor to Specialty Segment revenues and profitability is EpiPen®, an epinephrine auto-injector, which is used in the treatment of severe allergies. EpiPen is the number one prescribed treatment for severe allergic reactions with a U.S market share of over 95%.
In addition to the continued strong sales of EpiPen, the increase in third-party revenues is due primarily to increased sales of Perforomist® Solution, Dey's maintenance therapy for patients with moderate to severe chronic obstructive pulmonary disease.
Segment profitability for the current quarter was $29.8 million compared to $19.7 million in the comparable three-month period. The increase is the result of increased revenue and gross profit as operating expenses were consistent when comparing the periods.
Matrix Segment
For the three months ended June 30, 2009, the Matrix Segment reported total revenues of $133.5 million, of which $116.9 million represented third-party sales compared to total revenues of $118.8 million, of which $104.6 million represented third party sales, during the prior year comparable period. Approximately 50% of the Matrix Segment's third-party net revenues are derived from the sale of API and intermediates, and approximately 13% comes from its distribution business in Europe. The majority of the remainder came from sales of Matrix's finished dose form ("FDF") anti-retroviral ("ARV") products, which was the primary driver of the increase in sales. Matrix launched its FDF business in late calendar year 2007. The 11.8% increase in third-party revenues is primarily due to higher revenue from the sale of first-line ARV FDF products. On a constant currency basis, the increase in third-party sales would have been approximately 29%.
In addition to third party net revenue, Matrix realized other revenue of $12.9 million in the current quarter through intersegment product development agreements compared to $11.3 million in the same prior year period. Intersegment net revenue consists of API sales to the Generics Segment primarily in conjunction with Mylan's vertical integration strategy.
Segment profitability for the Matrix Segment for the current quarter was $10.9 million compared to $6.3 million in the comparable three-month period. This increase is the result of increased revenue and gross profit, including the intersegment development agreements discussed previously, partially offset by increased R&D spending.
Operating Expenses
R&D expense for the three months ended June 30, 2009, was $74.0 million compared to $80.8 million in the same prior year period, a decrease of $6.8 million. The decrease was primarily realized by the Generics Segment and is reflective of certain restructuring activities undertaken by the Company with respect to the previously announced rationalization and optimization of the global manufacturing and research and development platforms. Additionally, R&D expense was favorably impacted by foreign currency fluctuations and the timing of certain 2009 development projects. These decreases were partially offset by a non-recurring, up-front payment of $18.0 million made with respect to the Company's execution of a co-development agreement that was entered into during the three months ended June 30, 2009.
SG&A expense for the current quarter was $279.0 million compared to $259.5 million for the same period in the prior year, an increase of $19.5 million. This increase was primarily recognized by Corporate/Other. The increase in Corporate/Other SG&A expense is due primarily to higher payroll and payroll related costs and increased legal and consulting costs, including those associated with the purchase, during the quarter, of additional shares in Matrix. The increase in payroll and payroll related costs includes increased headcount as the Company expanded its corporate infrastructure following the acquisition of the former Merck Generics business. Partially
offsetting these items are lower integration costs, which were much more significant in the prior year, and the favorable impact of foreign currency fluctuations.
Interest Expense
Interest expense for the three months ended June 30, 2009, totaled $78.2 million compared to $92.4 million for the three months ended June 30, 2008. The decrease is due to the reduction of our outstanding debt balance through repayments made in December 2008 and March 2009, as well as lower overall interest rates.
Other Income, net
Other income, net was $25.3 million in the current quarter compared to $7.9 million in the comparable three-month period. The increase is primarily due to a favorable adjustment of $13.9 million to the restructuring reserve as a result of a reduction in the estimated remaining spending on accrued projects, as well as a net gain of $10.4 million realized on the termination of two joint ventures between Matrix and Aspen Pharmacare Holdings Limited ("Aspen").
Income Tax Expense
The Company recorded a provision for income tax of $26.2 million for the three-month period ending June 30, 2009 compared to a benefit of $28.9 million in the comparable prior year quarter. The fluctuation is due to the deductibility of certain foreign attributes and changes in unrecognized losses of certain foreign subsidiaries.
Six Months Ended June 30, 2009, Compared to Six Months Ended June 30, 2008
Total Revenues and Gross Profit
For the six months ended June 30, 2009, Mylan reported total revenues of $2.48 billion compared to $2.28 billion in the same prior year period. This represents an increase of $199.3 million or 8.8%. Net revenues increased $174.5 million, while other revenues increased $24.8 million. The increase in net revenues is due to higher third-party sales in all three of the Company's segments. The Generics Segment accounted for the majority of the increase ($131.3 million) followed by the Matrix Segment ($25.2 million) and the Specialty Segment ($18.0 million). On a constant currency basis, total revenues increased by approximately 17%. See below for a more detailed discussion of each segment.
The increase in other revenues in the six-month period was the result of approximately $26.0 million of incremental revenue resulting from the cancellation of product development agreements for which the revenue had been previously deferred. Prior to the termination of these agreements, Mylan had been amortizing the previously received non-refundable, upfront payments over a period of several years.
Gross profit for the six months ended June 30, 2009 was $1.05 billion, and gross margins were 42.5%. For the six months ended June 30, 2008, gross profit was $764.4 million, and gross margins were 33.6%. Gross profit for the current year to date period is impacted by certain purchase accounting related items recorded during the six months ended June 30, 2009, of approximately $139.1 million, which consisted primarily of incremental amortization related to purchased intangible assets and the inventory step-up associated with the acquisition of the former Merck Generics business. Excluding such items, gross margins would have been approximately 48.1%. Prior year gross profit is also impacted by similar purchase accounting related items in the amount of $230.2 million. Excluding such items, gross margins in the prior year would have been approximately 43.7%. The increase in gross margins excluding purchase accounting related items is due primarily to the launch of new products in North America.
Generics Segment
For the six months ended June 30, 2009, the Generics Segment reported total revenues of $2.06 billion. Total revenues from North America were $1.12 billion for the six-month period ended June 30, 2009, compared to $840.8 million for the six months ended June 30, 2008. Included in total revenues are other revenues of $43.5 million in the current year compared to $10.0 million in the prior year. This increase is the result of approximately $26.0 million of incremental revenue resulting from the cancellation of product development agreements.
North America net revenues were $1.08 billion in the six-month period compared to $830.9 million in the prior year, an increase of $245.0 million or 29.5%. This increase is the result of revenue from new products and favorable volume, partially offset by unfavorable pricing. New products contributed net revenues of $250.1 million, the majority of which was divalproex ER.
Fentanyl continued to contribute significantly to both revenue and gross profit . . .
|
|