Mylan NV (MYL) Stock Holders Can Shrug Off Kaleo’s EpiPen Threat

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It’s very easy to hate on Mylan NV (NASDAQ:MYL) these days, but that doesn’t mean you should hate on Mylan stock too.

Mylan NV (MYL) Stock Holders Can Shrug Off Kaleo's EpiPen ThreatThe best time to buy a stock is when its beaten down and MYL fits the bill. Mylan stock has tanked more than 30% since mid-August. The drop was sparked by outrage over repeated price hikes to its EpiPen drug.

Investors need to factor in the headline and revenue risk of such issues, but they should not get emotional. Yet given the action in MYL stock, that’s exactly what they’re doing. In other words, the selloff is probably overdone.

The latest kick to Mylan’s crotch comes in the form of an announcement from privately held pharmaceutical company Kaleo Pharma. On Wednesday, the company said it intends to challenge MYL by re-entering the market for epinephrine auto-injectors.

Known as the Auvi-Q injector, the pen was pulled from the U.S. market about a year ago after suspected malfunctions with delivering correct dosages. French pharma company Sanofi SA (ADR) (NYSE:SNY) was the original marketer of the product. The partnership dissolved after the recall and SNY returned the rights to Auvi-Q to Kaleo.

Kaleo didn’t disclose a price for the injector, but it has to compete with both MYL’s branded and generic versions of EpiPen. The generic version is about half the price of the original.

That’s key because brand-name drugs can be quite sticky. This is not necessarily a slam dunk for Kaleo. But even if Kaleo does peel off a chunk of MYL stock’s market, the stock price has more than discounted such an event.

The EpiPen market is worth more than $1 billion. That’s less than 10% of Mylan stock’s full-year revenue forecast. It’s a material hit, but hardly a killer blow. Big pharma companies cycle through blockbuster drugs as a matter of course. They’re used to losing exclusivity. That’s why it’s so important for them to stock their pipelines through research and development or acquisitions.

Mylan Stock: The Valuation Doesn’t Add Up

At Mylan’s price-to-sales multiple of 2.01, the entirety of MYL’s EpiPen business is worth roughly $2 billion in market cap. Mylan has already lost roughly $7 billion in market cap since the EpiPen price hikes became national news. Seems excessive.

You can see this overreaction in what investors are willing to pay for MYL’s future earnings. Shares currently trade at a forward price-to-earnings ratio of not-quite 7. That comes despite Mylan having a projected compound annual growth rate forecast of 13%. The S&P 500 is more than twice as expensive as MYL stock despite it having far worse growth prospects.

Mylan also trades at crazy discounts to what investors used to pay for shares. Over the last five years, MYL stock has traded at an average forward P/E of more than 11. That’s about a 30% discount to current levels.

It’s also good to keep in mind that ordinarily a stock’s forward P/E is higher than its long-term growth rate. Mylan’s is not. A P/E this low suggest that MYL is either cheap or cheap for a reason. The EpiPen impact doesn’t appear to be enough of a reason.

Traders may already be working in this fact. Mylan stock has actually been clawing its way back from a 52-week low set earlier this month. Progress has been fitful, to be sure, but the trend — for the moment at least — is up.

It would appear that a lot of the drawdown in Mylan stock is being driven by headline risk much more than any threat to the fundamentals. That doesn’t mean it can’t continue its downtrend for some time, but value investors with long horizons might want to consider this name.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/mylan-nv-myl-stock-shrug-kaleo-epipen/.

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