Mylan Inc.’s (MYL) third quarter 2011 earnings (excluding special items) of $0.55 per share surpassed the Zacks Consensus Estimate by $0.04 and the year-ago earnings by $0.12 per share. Earnings were boosted by higher revenues in the third quarter of 2011.
Quarter in Details
Total revenues at Mylan climbed 16.2% to $1.58 billion driven by the positive impact of foreign exchange (Fx). Revenues were also ahead of the Zacks Consensus Estimate of $1.54 billion. Net revenues as well as other revenues from third parties are included in total revenues.
Mylan reports revenues through two segments: Generics and Specialty. The Generics division primarily concentrates on developing, manufacturing, selling and distributing generic or branded generic pharmaceutical offerings in tablet, capsule, injectable or transdermal patch forms, as well as active pharmaceutical ingredients. The Specialty unit primarily focuses on developing, manufacturing and selling branded specialty nebulized and injectable products.
Generic third party net sales, derived from sales in North America, Europe, Middle East & Africa (EMEA), and the Asia Pacific, climbed 13.3% to $1.36 billion in the third quarter of 2011. Third party net sales declined in EMEA, but grew in the Asia-Pacific and North American markets.
Third party net sales in North American markets rose 21.7% to $649.0 million in the reported quarter. The increase was mainly attributable to new product launches which included the generic equivalent of AstraZeneca’s (AZN) Entocort EC. Results were aided by the September 2010 purchase of Bioniche Pharma. Moreover, the existing products also did well in the reported quarter driven by favorable pricing and higher volumes.
Third party net sales from the EMEA market declined 3.5% to $350.8 million despite the positive impact of Fx. The positive impact of Fx was outweighed by increased competition and government reforms resulting in lower pricing in markets like Spain and France. However, Italy did well in the quarter.
Third party net sales in Asia-Pacific increased 15.9% to $310.6 million. Fx positively impacted third party net sales by 7.9% in the region. India and Japan fared very well during the reported quarter.
Third party net sales from the Specialty division jumped 51.6% to $213.9 million. The impressive performance of the segment was attributable to strong sales of EpiPen Auto-Injector and Dey’s Perforomist inhalation solution.
Adjusted gross margin came in flat year over year at 48% in the reported quarter.
Guidance
Mylan tightened its outlook for 2011. Mylan expects 2011 adjusted earnings in the range of $1.98–$2.02 per share (old guidance: $1.95–$2.05 per share). The Zacks Consensus Estimate for 2011 is $2.00, well within the revised guidance range provided by the company.
The generic player continues to expect compounded annual growth rate (for the three year period of 2011-2013) of 15% and 20% for revenues and earnings, respectively. Mylan continues to expect adjusted earnings of $2.75 per share by the end of 2013.
Our Recommendation
We currently have a Neutral long-term recommendation on Mylan. The shares carry a Zacks #3 Rank (short-term Hold rating). Mylan is one of the leading players in the US generics market. The company holds immense potential as many blockbuster drugs are slated to lose patent exclusivity in the forthcoming period.
We are encouraged by Mylan’s robust generic pipeline. However, competition in the generic segment is strong with players like Teva Pharmaceuticals (TEVA), Watson Pharma (WPI) and Sandoz — the generics arm of Novartis (NVS) — in the field.
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