We have maintained our Neutral recommendation on Mylan Inc. (MYL) with a target price of $25.00 following an appraisal of first quarter 2011 financial results.
Mylan reported first quarter EPS of 44 cents, in line with the Zacks Consensus Estimate but well above the year-ago earnings of 36 cents per share. A higher quarterly tax rate, an increased share count and pricing pressure in Europe offset the increase in generics revenue in North America to deliver in line earnings growth.
Mylan reports revenues from two segments: Generics and Specialty. Generic revenues grew 12% to $1.34 billion in the first quarter of 2011 as a decline in the Europe, Middle East & Africa (EMEA) market was offset by growth in other markets like Asia-Pacific and North America.
The company is one of the leading players in the US generics market and has a strong foothold in the European market. A large number of high-value branded pharmaceuticals are expected to go off-patent in the next couple of years. These patent expirations should provide additional generic product opportunities.
The company boasts of a robust generic product pipeline. Mylan has over 1,500 products filed around the globe with the company expecting to launch 500 products globally in 2011. We expect the generic segment to post strong sales in the latter half of the year, benefiting from major product launches in the first half.
Mylan expects to launch 90 new products in North America, including 15 limited competition products of which three [generic versions of Pfizer’s (PFE) Vfend, Shionogi Pharma’s Sular and Novartis’(NVS) Femara] have already been launched with 180 days of exclusivity. In Europe, Mylan expects to launch about 360 products in 2011. An important generic launch was Nexium in France and Italy in the first half of 2011.
Mylan also markets branded specialty injectable, nebulized and transdermal products for life-threatening conditions through its Branded Speciality Pharmaceutical business, which it conducts through Dey Pharma. Important products include EpiPen Auto-Injector and Perforomist Inhalation Solution.
These products not only offer Mylan the necessary diversification from generics but also contribute to top-line growth. Revenue from the Specialty division climbed 17.3% to $97 million in the first quarter of 2011, benefiting from increased sales of the EpiPen Auto-Injector.
Mylan maintained its outlook for 2011 following solid first quarter results. It expects revenues in the range of $6.1 billion to $6.4 billion. Mylan expects 2011 adjusted earnings in the range of $1.90–$2.10, representing a growth of 24% over the prior year.
Mylan also indicated that the second quarter will be very similar to the first quarter, in terms of revenue and earnings growth. This means that the company will have to perform much better in the second half of 2011 to meet the 2011 guidance range.
Management believes new product launches in the first half will benefit the second half of 2011, which in combination with seasonality of certain businesses will help the company achieve its 2011 earnings guidance.
However, we remain concerned about the lack of growth in the European generics business. Mylan is witnessing pricing pressure and currency fluctuations in several European markets, which have been a slur on the performance of this segment over the last few quarters and are expected to continue so in fiscal 2011 as well.
We also prefer to remain on the sidelines until we get better visibility on the impact of new product launches in the first half of 2011 on performance in the latter half.
MYLAN INC (MYL): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
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