Mylan Inc.’s (MYL) first quarter 2011 earnings (excluding special items) of 44 cents per share were in line with the Zacks Consensus Estimate. A higher quarterly tax rate, increased share count and pricing pressure in Europe offset the increase in generics revenue in North America to deliver in line earnings growth. Earnings were nevertheless 22% above year-ago earnings of 36 cents per share.
Quarter in Details
Total revenues at Mylan climbed 12.1% over the prior year to $1.45 billion driven by increased sales of generic drugs. Revenue was also barely above the Zacks Consensus Estimate of $1.44 billion. Total revenues comprises both net revenues and other revenues from third parties.
Mylan reports revenues from two segments: Generics and Specialty.
Generic third party net sales, derived from sales in North America, Europe, Middle East & Africa (EMEA), and the Asia Pacific, climbed about 12% to $1.34 billion in the first quarter of 2011. Third party net sales declined in EMEA, but grew in other markets like Asia-Pacific and North America.
Third party net sales in North American markets climbed 22.1% to $674.3 million in the reported quarter. The increase was mainly attributable to new product launches in the US and Canadian markets as well as increased volume due to stability in supply. Moreover, results were aided by the September 2010 purchase of Bioniche Pharma.
Third party net sales from the EMEA market declined 4.4% to $389.1 million. The decline was mainly attributable to pricing pressure in some European markets like Germany, UK and Portugal. However, Italy, Spain and France did well in the quarter. France benefited from new product launches which offset the negative impact from pricing.
Third party net sales in the Asia-Pacific market climbed 16.9% to $276.1 million, driven by increased sales of anti-retroviral finished dosage products and active pharmaceutical ingredients (API) by the company’s Indian subsidiary, Matrix. Foreign exchange also benefited sales in this segment by around 7%.
Third party net sales from the Specialty division climbed 17.3% to $97 million, benefiting from increased sales of the EpiPen Auto-Injector.
Adjusted gross margins improved to 47% (from 46% in the prior-year quarter), mainly due to new product launches and a positive sales mix in North America in the Generics division coupled with favorable pricing for EpiPen.
Share Repurchase Program Announced
Mylan announced that its board has cleared a buyback program of its common stock and other equity securities worth upto $350 million. The share repurchase program is expected to be completed by June 30, 2011.
2011 Guidance Reiterated
Mylan maintained its outlook for 2011 following solid first quarter results. Mylan expects 2011 adjusted earnings in the range of $1.90-$2.10, representing a growth of 24% over the prior year. The Zacks Consensus Estimate is currently at $2.02, within the guidance range.
2013 Projection Backed
Mylan also backed its 2013 projected revenues of $8.5 billion and earnings per share of $2.75 due to anticipated top- and bottom-line growth. The company continues to expect three-year compound annual growth rates for revenues and earnings at 15% and 20%, respectively. The company expects to generate cumulative cash flow of $4 billion over 2010-2013.
Our Recommendation
We currently have a Neutral recommendation on Mylan, while its shares retain a Zacks #2 Rank (short-term Buy 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 product pipeline. However, competition in the generic segment is strong with players like Teva Pharmaceuticals (TEVA), Watson Pharma (WPI), Par Pharmaceuticals (PRX) and Sandoz (the generics arm of Novartis [NVS]) in the field.
We also remain concerned about the lack of growth in the European generics business. We intend to remain watchful until we get better visibility on top-line growth prospects in Europe.
MYLAN INC (MYL): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
PAR PHARMA COS (PRX): Free Stock Analysis Report
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
WATSON PHARMA (WPI): Free Stock Analysis Report
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