Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Sometimes after an awful day, or year, you just want to find someone else who knows your pain.  

Take David Einhorn's Greenlight Capital, which ended 2015 down 20 percent. On Tuesday it disclosed a long position in drugmaker Mylan, which is down 34 percent from its 2015 highs.

The Green Light
Mylan had a rough go of it in 2015, but has started to recover, and now has David Einhorn's Greenlight Capital in its corner.
Source: Bloomberg

In a letter to investors, Einhorn wrote that he thinks the market overreacted to what was a rocky year for Mylan and the pharmaceutical industry more broadly. He sees upside in the stock from share buybacks and the company's product pipeline. 

Greenlight got in at an average price of $45.32. Mylan's shares are already up to around $50. It seems like a solid bet made at the right time. 

Mylan was caught in something of a perfect storm in 2015. It's primarily a generic drugmaker, but it also has a large specialty pharmaceutical business -- which meant it suffered from last fall's downturn in drug stocks, while most other generic firms avoided the pain.

It also rejected what now looks like a generous $82-a-share takeover offer from Teva, which crushed its share price. To fend off the deal, Mylan employed an elaborate takeover defense that may scare off other potential buyers and raised corporate governance concerns, as it effectively takes takeover decisions out of shareholder hands. On top of all that, it doggedly pursued an expensive takeover of Perrigo that turned off investors.  

Add all that up and you get a stock that under-performed the S&P 500, massively lagged its generic peers, and even fell behind a badly bruised specialty pharmacy index for much of 2015. 

We don't know exactly when Einhorn bought shares. Based on the average price his letter quotes, it appears to be some time after Hillary Clinton's September tweet about high drug prices hammered drug stocks, but before investors cheered the Perrigo deal's failure and a subsequent buyback announcement. 

Riding low
Mylan had a rough 2015 after two contentious bouts of M&A speculation that ended up going nowhere (comparison indexed to 100)
Source: Bloomberg
Generics index is Bloomberg Intelligence's

Though much of Mylan's turmoil has passed, the stock is still pretty cheap. Einhorn got in when it was valued at about 9 times 2016 consensus EPS estimates, according to the letter. According to Bloomberg data, the company is currently trading at a 36 percent discount to comparable generic companies, which trade on average at 15.4 times blended forward P/E. Mylan's discount is even bigger relative to Bloomberg Intelligence's specialty pharmaceutical index, which trades at an average of 18.4 times forward P/E. 

Mylan's previously announced $1 billion buyback plan is another positive. 

But real growth will have to come from the underlying business, which has potential. The company has grown sales by an average of 27 percent per year since 2008. Its best selling drug, the EpiPen for allergic reactions, is facing generic competition. But its biggest competitor, Sanofi, was forced to recall its version of EpiPen in October on safety concerns, and Teva's version has been delayed.

Mylan looks likely be the first to reach the U.S. market with a generic version of Advair, GlaxoSmithKline's $3 billion-a-year blockbuster asthma drug. The company has one of the largest portfolios of biosimilar drugs -- the generic equivalents of pricey drugs made with living cells instead of chemical molecules. It signed a deal in January with Momenta that added six more to its portfolio, giving it a total of 15 programs targeting drugs with combined sales of over $40 billion.

With a net debt to Ebitda ratio of 2.1 as of the third quarter of 2015, the company is less levered than many specialty and generic peers, meaning it can hunt for bargains in a depressed market. CEO Heather Bresch said at last week's JPMorgan health care conference that Mylan expects to be "active" in acquisitions. 

Einhorn wrote in his shareholder letter that his firm just couldn't seem to find winning long bets last year. He may have one in a fellow survivor of the crucible of 2015.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net