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Morningstar | Mylan’s Complex Product Success Is Offset by Generic Industry Headwinds

Mylan remains one of the largest generic drug manufacturers thanks to ongoing acquisitions and a compelling generic launch pipeline, including limited-competition products like Copaxone, Advair, and Restasis. Regardless, we still have long-term concerns about hefty pricing pressure in the generics industry and the firm's high financial leverage. Mylan has capitalized on the large value of drugs coming off patent over the past few years, but we see increasing challenges ahead. We think recent sluggish industry growth will continue due to fewer large drug patent expirations, a consolidating customer base in the United States, and the entry of nimble low-cost competitors. The acquisitions of Agila, Meda, and Abbott's non-U.S. developed-market products increase Mylan's product and geographic diversification, but competitive dynamics and government pricing should continue to limit organic growth opportunities in Europe as well.Following a similar strategy to its peers, Mylan intends to overcome generic industry concerns by expanding its specialty pharma and complex generic operations. Complex generics, such as biosimilars, injectables, and respiratory inhalers, generally face limited competition and enjoy higher margins thanks to higher development, manufacturing, and regulatory hurdles. Mylan is developing biosimilars and generic insulins with partners like Biocon, and it is so far the only company to secure approval of a generic version of GlaxoSmithKline’s Advair in the U.S. Despite these wins, we’re still skeptical of Mylan’s success in some of these complex products, and we think the company trails some of its peers in biosimilars.Mylan's specialty drug segment, made up primarily of EpiPen, has grown above our expectations, but the emergence of competing epinephrine products should pressure this segment’s future growth and profitability. Following recent criticism of price increases, management launched an authorized EpiPen generic in late 2016 followed by the launch of Teva's generic copy in late 2018. Beyond EpiPen, the company mostly lacks a pipeline of branded drugs.