We have maintained our Neutral recommendation on Mylan Inc. (MYL) with a target price of $23.00 after appraising fourth quarter and fiscal year 2010 financial results.
Mylan’s fourth quarter 2010 earnings (excluding special items) of 45 cents per share were at par with the Zacks Consensus Estimate. Higher operating expenses offset the increase in revenue to deliver in line earnings growth. Earnings were however well above the year-ago figure of 33 cents per share. Revenues climbed 6% to $1.43 billion but fell short of the Zacks Consensus Estimate of $1.46 billion.
Mylan reports revenues from two segments: Generics and Specialty. Generic revenues grew 5.5% to $1.35 billion in the final quarter of 2010 as a decline in the Europe, Middle East & Africa (EMEA) market was offset by growth in other markets like Asia-Pacific and North America. Mylan is one of the leading players in the US generics market with its Generics business consistently performing well. We believe this business will continue on its growth trajectory on the back of a robust generic pipeline.
Mylan has over 1,500 products filed around the globe with the company expecting to launch 500 products globally in 2011. Mylan expects to launch 90 new products in North America, including 15 limited competition products of which 3 have already been launched with 180 days of exclusivity. These are generic versions of Pfizer’s (PFE) Vfend, Shionogi Pharma’s Sular and Bayer’s (BAYRY) Precose. Key upcoming date-certain launches in the US include generic versions of Novartis’ (NVS) Femara (second quarter 2011), Pfizer’s Effexor ER (June 2011) and Caduet (November 2011). We believe these drugs will boost Mylan’s revenues going forward.
In Europe, Mylan expects to launch about 360 products in 2011 with about 200 in the first half. An important generic launch would be Nexium in the first half of 2011. We believe these new product launches in combination with easing pricing comparisons could lead to improved growth trends in Europe in 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 contribute to segment growth, going forward. Revenue from the Specialty division climbed 33.2% to $75 million in the fourth quarter of 2010, benefiting from increased sales of the EpiPen Auto-Injector.
Mylan expects 2011 adjusted earnings in the range of $1.90–$2.10 per share, representing an estimated growth of 24% over the prior year. Adjusted revenues (third party revenues), projected in the range of $6.1 billion to $6.4 billion, would be driven by 13% constant currency growth in the Generics segment and 20% growth in the Specialty segment. The Zacks Consensus Estimate for 2011 of $1.99 per share on revenues of $6.13 billion is in accordance with the company guidance. We believe that the clearly visible launch of generic pipeline drugs lends credibility to the given guidance.
On the flip side, however, Mylan is witnessing pricing pressure and currency fluctuations in several European markets, which have affected EMEA segment performance over the last few quarters. We maintain our cautious stance until we get better visibility on top-line growth prospects in Europe. The generics market is also highly crowded and Mylan may suffer if any other player in this segment including Teva Pharmaceuticals (TEVA), Watson Pharma (WPI), Par Pharmaceuticals (PRX) or Sandoz (the generics arm of Novartis) succeeds in launching their products ahead of Mylan.
BAYER A G -ADR (BAYRY): Free Stock Analysis Report
MYLAN INC (MYL): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
PAR PHARMA COS (PRX): 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
WATSON PHARMA (WPI): Free Stock Analysis Report
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