Mylan (MYL) To Report Q3 Earnings: Stock Likely To Disappoint

Mylan N.V. (NASDAQ:MYL) is scheduled to report third-quarter 2016 results on Nov 9, after the market closes. The company’s performance has been decent so far, having beaten earnings estimates in three of the trailing four quarters. Overall, it has delivered an average positive surprise of 0.86%.

Last quarter, the company recorded a positive earnings surprise of 0.87%. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Mylan was in the news through the entire third quarter for the massive price hike of its severe allergy treatment, EpiPen, in the recent years, for which it drew flak from lawmakers, consumers and the common people alike. Reeling under pressure, Mylan tried to mitigate the issue by offering a savings card for up to $300, expanding the eligibility of its patient assistance program and announcing the upcoming launch of a generic EpiPen at a discount of over 50% on the branded product’s price.

The company again made it to the headlines when several lawmakers questioned Medicaid rebates for EpiPen. The Centers for Medicare & Medicaid Services found that Mylan had misclassified EpiPen as a non-innovator multiple source drug or a generic drug in the Medicaid Drug Rebate Program. This means that the company has been vastly underpaying rebates to Medicaid for the drug for a long time. This led to millions of dollars in overpayment for the drug by states and the federal government under the Medicaid Drug Rebate Program.

Finally, last month, Mylan agreed to pay $465 million to the U.S. Department of Justice and other government agencies to settle the issues regarding the classification EpiPen for purposes of the Medicaid Drug Rebate Program. The company expects to take a third-quarter 2016 pre-tax charge of approximately $465 million to reflect this settlement.

Concurrent to the announcement of the settlement, Mylan lowered its 2016 earnings outlook. The company now expects earnings in the range of $4.70–$4.90 per share, marking a significant reduction from the previous guidance of $4.85–$5.15.

The company attributes the lowered earnings guidance largely to the changes in EpiPen access programs and the upcoming launch of generic EpiPen. Mylan also stated said that it expects to see a considerable impact of this guidance in the third quarter of 2016.

Meanwhile, Mylan’s Generics segment has been performing well over the last few quarters and should continue the momentum this quarter as well. Moreover, the company has seen quite a few generic launches over the past few quarters and this one was no exception. Newly launched products should perform well and aid the top line, while acquisitions contribute meaningfully, thereby driving segmental growth.

In the to-be-reported quarter (in Aug 2016), Mylan acquired Swedish drug maker Meda in a deal worth $9.9 billion.

Notably, Mylan’s Specialty segment, of which EpiPen is the most significant product, is expected to take a hit.

On the third-quarter call, investor focus will be on the company’s performance as well as on the EpiPen pricing controversy given that lawmakers continue to question the company’s pricing policy, and political, public and media focus is on the issue.

Earnings Whispers

Our proven model does not conclusively show that Mylan is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to likely post an earnings beat. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.99%. Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.

Zacks Rank: Mylan currently has a Zacks Rank #4 (Sell). As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

MYLAN NV Price and EPS Surprise

Stocks that Warrant a Look

Here are some health care stocks that you may want to consider instead, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

ARIAD Pharmaceuticals Inc. (NASDAQ:ARIA) is scheduled to report third-quarter results on Nov 7. It has an Earnings ESP of +5.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP) is +3.33% and it carries a Zacks Rank #3. The company is expected to release third-quarter results on Nov 8.

Synergy Pharmaceuticals, Inc. (NASDAQ:SGYP) is expected to report third-quarter results on Nov 14. It has an Earnings ESP of +18.18% and a Zacks Rank #3.

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