Morgantown restructuring costs weigh on Mylan
- Following a Food and Drug Administration inspection of its Morgantown, West Virginia, facility in March and April, Mylan began a restructuring program aimed at reducing complexity at the site, including discontinuation and transfer of a number of products, cuts in the workforce, and "extensive remediation activities."
- These changes have resulted in a negative impact on gross margins of approximately 340 basis points, caused by changes such as manufacturing expenses.
- Morgantown focuses on oral solid drugs, and Mylan does not expect to have any significant new product launches from this site in 2019. The company expects improved costs, efficiencies and profitability once all remediation and restructuring activities are completed.
The generic drugmaker has been having a difficult time. Back in August, Mylan's board of directors gave few details when announcing a strategic review of its North American business to assess a "wide range" of options.
That review could foreshadow changes to business strategy. Results from third quarter earnings confirmed the unit's downward trajectory, with a 14% decrease in North American segment sales from a year ago reflecting a $1 billion drop.
In March and April 2018, the FDA inspected Mylan's West Virginia facility. A resulting Form 483 revealed concerns about the company's quality control unit, including testing procedures and record keeping, and questioned the equipment cleaning processes and protocols.
Mylan stated it had "submitted a comprehensive response to the Agency and committed to a robust improvement plan."
The plan started to kick in during the second quarter of 2018, when the Morgantown plant saw over 400 job cuts. The company also discontinued a number of products, and transferred some to other sites in its network. Remediation and restructuring costs have totaled around $184 million in the first nine months of 2018.
"[To] manage to keep pace with FDA's evolving standards, we need to rationalize and simplify the plant and reduce the complexity," said Mylan's president, Rajiv Malik, on the third quarter earnings call. "These actions have led to a temporary disruption in supply of certain products for our customers and reduced volume in North America generic sales. However, the value related to the rationalized product is not proportionate to the reduced volumes of those commoditized products."
While Malik asserted that oral solid doses only make up a certain proportion of Mylan's North American business, the restructuring at Morgantown is a key revenue reducing factor. Other reasons, executives said, include new accounting standards, lower sales, the divestiture of contract manufacturing assets and loss of exclusivity.
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