Mylan investors are fed up with management—and for good reason, analysts say

Mylan investors sent shares reeling after the generics giant reported poor first-quarter numbers. But to hear some analysts tell it, shareholders have far more to worry about: Executives aren't performing up to par, and some behind-the-scenes agreements are worrisome, to say the least.

The company's paying its chairman for not using its plane, for instance, and it's been shelling out to a company run by his brothers and son for decades.

But is Mylan's board paying attention?

That remains to be seen. What's clear is that shareholders are. In a note to clients Tuesday, RBC Capital Markets analyst Randall Stanicky wrote that the company’s 24% share price decline Tuesday "sent a clear signal that was beyond" profits and losses.

"Management challenges forecasting the business, delays in responding to industry change and governance frustrations contributed to an overly punitive sell-off sending shares back to mid-2012 levels," he added. And the stock has dropped since: Wednesday, it closed at $21.89.

That's down from $76 in April 2015. And it's just about one-quarter what Teva Pharmaceutical offered to buy the company for at the time: $82 per share.

Indeed, Mylan stock has lost 55% of its value since early last year, which "should send a message to the board," Stanicky added. In a survey the analyst conducted last month, investors said leadership and corporate governance represented the company’s biggest risk this year. 

Mylan has a history of outsized executive pay and has raised eyebrows with alleged insider dealing. In a note to clients, Wells Fargo analyst David Maris wrote that some of the company’s relationships "continue to concern us, as does recent disclosure of the chairman being paid for not using the company plane." 

In a securities filing (PDF), Mylan said chairman Robert Coury is owed 70 hours of personal aircraft use per year, or up to $1.5 million in cash for unused time, under deals he struck with the company. Last year, he used the aircraft for 26.5 hours and pocketed a payment of $947,524 for the remainder. The deal continues into this year. 

Meanwhile, according to the same filing, a Coury family company has been paid since 1995 for employee benefits services—and last January, Mylan extended that contract. The Coury Firm LLC, run by the chairman's brothers and one of his sons, has served as Mylan's employee benefits broker for more than 20 years and counting.  

And despite Mylan’s financial struggles and alleged missteps, the drugmaker recently inked new employment contracts with top managers, Maris wrote. Among its woes? Poor stock performance, the EpiPen pricing scandal, price collusion allegations, long delays to launch generic Advair and cuts to financial projections, Maris wrote.

The airplane deal, new management contracts, et al., "seem to not recognize the stock price performance and current political environment," Maris wrote. And both analysts pointed out that the company is undergoing a strategic review that doesn't seem to be yielding any solutions.

Investors have certainly tanked the company's shares. But an activist likely couldn't step in and force change, thanks to a quirk of Dutch law that Mylan, as a Netherlands-based company, could take advantage of. As RBC’s Stanicky pointed out, the company could enact a "stichting" defense, as it did when Teva pursued a hostile takeover. 

That "arguably puts more power (and responsibility) in the hands of the Board and we expect investor focus to further pick up here, particularly given that the board is nine months into a lengthy strategic review that has no end in sight," Stanicky wrote. 

In the first quarter, Mylan reported revenue of $2.49 billion that missed analyst estimates of $2.69 billion. Each of the company’s segments—North America, EMEA and Rest of World—fell short of expectations. However, earnings per share of 82 cents came in ahead of consensus estimates of 79 cents.  

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