Mylan: Mylan Receives Non-Approval on Advair; What Now?

A former Wall Street analyst discloses the topics that equity analysts and hedge fund managers are currently talking about. 

While I was eager to jump out of the complicated world of pharma and move on to other more relatable stocks, an update on Mylan after their Advair-generic action date is probably the more prudent move. 

As I had written previously, Mylan investors were anticipating the upcoming action date on their generic drug for Advair on March 28th. Generally, the consensus anticipated a likely delay (which would probably send the stock down 2-3%), but left open the possibility for a surprise approval (which would have maybe sent the stock up 10%). As a whole, however, the consensus also anticipated that the drug would likely get approved some time in 2017, and consensus 2017 EPS estimates (as well as management's guidance) baked in some degree of Advair-generic revenue. 

Here's what happened when the results were released a day later, intraday:

The company received a CRL (complete response letter), which is essentially a non-approval from the FDA. Mylan stated that they would review the letter and provide an update after reviewing and discussing with the FDA.


What does this mean for the stock?

- Mylan hasn't provided any details about the CRL so it's difficult to say just how long the Advair-generic approval might be delayed. It could be a minor thing that could be fixed quickly, or it could drag on for awhile (if there are manufacturing deficiencies, for example). 

- In general, most investors seem to think that it is likely going to drag on for another 9-12 months (and therefore is likely to move into 2018), based in part on the Copaxone-generic experience, but also in part on the complexity of the application. But really, we won't know much more until Mylan discloses more details around the CRL letter and what needs to be done in response. 

- Expectations were clearly low as the stock only declined 3% on the day. However, the stock did drift down further the next day. Note that management had guided towards a mid-year launch, and had adjusted their Advair-generic financial contributions for the risk that it could be delayed. So the drug is not fully accounted for in the company's guidance, but it is certainly in there to some degree. The news isn't a non-issue, but investors were bracing for this and had taken this into account. More bad news could send the stock down more though (when we hear about details about the CRL, for example). Additionally, given that most analysts do not expect the drug to receive approval in 2017, it's likely that consensus estimates will drift down towards the low end of guidance (from current $5.33 to ~$5.15). 

- As I stated in my previous article, investors appeared to bake in roughly $0.10 - $0.25 in EPS into their 2017 estimates from the Advair generic. Analysts had roughly somewhere between $70 - $200M in revenue baked into their estimates. Those contributions are now at risk if the drug is delayed beyond 2017. Management's $6 guidance target by 2018 likely remains in tact, though.

- Investors are now looking at some of the other large drugs that could gain approval in 2017 to see if they could help management hit their guidance targets (in case the Advair-generic is not launched this year). 

- Hikma's GDUFA date for their generic is May 10th - that is the next date to keep an eye on as an approval there greatly affect the market and Mylan's position in it. Most investors do not expect an approval.


Other Key Drugs

In terms of those other drugs in the company's portfolio, a few to keep an eye on:

- Copaxone: Management has said that the Copaxone 20mg application is at the FDA and could get approval in 1H17, and that the 40mg could come out shortly afterwards. However many analysts are skeptical of this, and do not bake in much (if any) revenue from Copaxone. Management does have some Copaxone revenue in their guidance, but their tone suggested that it was heavily risk-adjusted.

- Estrace:  Management also expects Estrace in 2017. They noted that the drug is at an advanced stage in the process, but could not get more specific than that. Note that Estrace targets over $400M of branded sales.