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.

The great generics slump of 2017 has claimed another victim. 

A combination of generic product-launch delays and crushing generic-drug price pressure in the U.S. forced Mylan NV on Wednesday to slash its full-year earnings guidance for 2017, as it released second-quarter earnings that missed analyst estimates. 

The news hit the firm's already battered shares, which fell as much as 5 percent Wednesday morning. 

Timber
Generic and EpiPen pressures have sent Mylan's already battered shares down further

The drugmaker faces something of a perfect storm in its North American business, by far its largest. Structural issues with the generic-drug market -- such as buyers consolidating into giant consortiums and increasingly rapid FDA approvals of generic medicines --  mean the pricing pressure hurting the company's revenue and profit will likely continue.

This unit also includes the firm's specialty business, which is dominated by EpiPen. And though Mylan has taken steps to protect sales of the lifesaving allergy medicine, there's only so much it can do as competition grows. Mylan on the earnings call said its underlying North American business was "solid." But it sure looks shaky. 

When you remove the impact of two acquisitions Mylan made last year, it becomes clear the sales decline at the company's base North American specialty and generic business is substantial:

Rough Sledding
Mylan's biggest business unit is having trouble -- especially when you remove the impact of recent acquisitions
Source: Bloomberg

Launches of Mylan's delayed generic products, most notably copies of  GlaxoSmithKline PLC's Advair and Teva Pharmaceutical Industries LTD's Copaxone, should help alleviate some of this pressure -- when they actually happen.

CEO Heather Bresch said these product delays only cause a temporary guidance hit; they shouldn't have a permanent impact. Investors should be skeptical of that claim.

Delaying these products reduces their sales potential for Mylan. The drugs will almost certainly face greater or more rapid competition than if they had stayed on schedule. And Mylan's difficulty getting these products to market doesn't exactly generate confidence in its R&D and regulatory execution. 

Mylan's acquisitions of European specialty pharma company Meda AB and topical specialty drugmaker Renaissance last year look smart. They were prescient efforts to diversify as U.S. price pressure increased, broadening Mylan's product portfolio and geographic reach.

But they are unlikely to entirely make up for continuing weakness in the largest pharmaceutical market. Though other regions now make up a majority of Mylan's sales, the North American division remains by far the company's most profitable.

Divide
Mylan's struggling North American business remains by far its most profitable
Source: Bloomberg

At a combined price tag of more than $11 billion, those acquisitions weren't cheap; Mylan now has $14 billion in debt. That load, its U.S. business struggles, and a stated commitment to keeping an investment-grade credit rating will hamper the company's ability to make more large transactions.

Mylan is portraying many of its problems as temporary. That's likely wishful thinking.

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