If there’s one thing giving Mylan analysts pause, it’s the company’s plans to ramp up 2019 spending. It's true that the company is in the midst of rolling out several key drugs. But whether that extra outlay can pay off is the question.
On the one hand, it’s no surprise that Mylan may be looking at increased costs to support its new rollouts, including its biosimilar of Amgen’s Neulasta and its brand-new generic of GlaxoSmithKline’s Advair. “We wouldn’t disagree” that extra investment “is probably required,” Leerink Partners’ Ami Fadia noted in her own note to clients.
The company’s generic Copaxone launch likely hasn’t done much to earn their faith, though. Mylan CEO Heather Bresch admitted on the fourth-quarter conference call that the product’s performance dragged the company down, despite the mammoth discount it served up last year.
The way Fadia sees it, “at this point,” the extra launch backup “manifests itself as a certain upfront investment for an uncertain financial reward,” she said. And RBC Capital Markets analyst Randall Stanicky—who said he's “still not sure” where the extra spending is going—agreed, writing that a return on investment for that greater spend is “far from clear.”
Plus, the spending step-up was "unexpected," as Stanicky put it in a note to clients—and that dragged 2019 profit forecasts below what market watchers were expecting.
The spending ramp taints "what could have been an otherwise in-line to decent outlook,” Stanicky wrote after Mylan unveiled its fourth-quarter report, simultaneously downgrading his price target for the generics giant’s stock.
The change in spending for this year “begs the question of whether Mylan has been underinvesting in SG&A," Stanicky wrote, pointing out that other companies' spend is going down. And that, in turn, could help explain why its Copaxone copy isn't up to par.
Mylan, though, insists the product is now on the right track. Executives pointed to increased use of the company’s support services and changes in plan coverage that together have pushed market share upward of 35%.
And that’s not Mylan's only new product on the up and up, they stressed. Neulasta knockoff Fulphila has captured more than 15% of the prefilled syringe market, and the company is using a patient-focused call center, reimbursement support and copay assistance to drive uptake. It also has 150 reps promoting its newly approved version of Advair, which has “full parity and access on eight of the top 10 Medicare Part D plans” accounting for 50% of Advair usage in Part D, Fadia said.
With those factors in mind, Mylan expects to see revenues land between $11.5 billion and $12.5 billion this year, up from the $11.43 billion it recorded in 2018. That revenue outlook “encouraged” Stanicky and his colleagues despite their remaining questions around spend, he wrote.
Guidance aside, though, Mylan still has plenty of question marks surrounding 2019 thanks to a strategic review it kicked off last summer. The drugmaker had said it would update investors on its timeline on Tuesday but only said the review is “nearing the end,” declining to go into specifics.
Stanicky, for his part, has argued that Mylan—which has said it’s weighing a sale—should consider a leveraged buyout from a private equity player.