Author Topic: MYL - Mylan  (Read 7407 times)

Schwab711

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Re: MYL - Mylan
« Reply #10 on: October 24, 2016, 10:28:19 AM »
I can't really add much company-specific detail since I haven't ready Mylan's reports, but I can give a little background from a general POV.

The largest pharma companies can be thought of as like Unilever or Coca-Cola and McKesson/Cardinal as the grocers (this is not a perfect example, but it should work for this post). Like Unilever/KO, pharma companies have a lot of branded products that are in demand, thus they have a strong relationship with the distributors (which is like shelf-space at a grocer). Hospitals/pharmacies can only have so much inventory, so they are at times reliant on McKesson/Cardinal to provide in-demand products to stock. Mylan (and all the other large pharmas) use this strong relationship with the distributors (the top 3 distributors account for 85% market) to help small or niche pharmas gain distribution (often through licensing deals with upfront payments + milestones based on sales). Sometimes these license deals are with large int'l pharmas so each pharma can focus on their core market(s).

Mylan does some licensing deals which may require fixed/variable annual payments or one-time payments. This line item is likely those annual payments (large one-time/upfront payments should definitely be noted). The licensing deals generally (but not always) run for the life of the patent + 6 months (protected life of compound).

If this is what that line item represents, it is definitely [maintenance] CapEx. These payments are mandatory (and should be included in COGs). I'll try to answer or point you in the right direction if you have anything else.

GAAP accounting for license/rights payments:
https://www.pwc.com/us/en/health-industries/our-perspective/assets/us-gaap-issues-nov-2013.pdf

Simple overview of how to think about individual license/rights deals:
http://files.pharmadeals.net/contents/Sample_Valuation.pdf

Haven't read this yet but it's Mylan specific so may be interesting:
http://publications.ruchelaw.com/news/2015-11/Vol2no9_06_Mylan.pdf


aceskc

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Re: MYL - Mylan
« Reply #11 on: October 24, 2016, 11:54:13 AM »
Thanks Scwab711 , very helpful information. I suspected as much, since the expenditure this year, has roughly been in line with last year. No sure, why they would not include this in their capex guidance anywhere...probably why FcF trails adjusted earnings & cashflows