Mylan Inc. (MYL) reported third quarter earnings per share of 43 cents, a penny above the Zacks Consensus Estimate but well above the year-ago earnings of 32 cents. Revenues increased 7.2% to $1.36 billion but fell short of the Zacks Consensus Estimate of $1.41 billion.
Quarter in Detail
Both revenue segments at Mylan recorded growth during the third quarter. While Generics accounted for about 90% of total third quarter revenues, posting sales of $1.22 billion (up 8.9%), revenues from the Specialty segment increased marginally to $155.6 million.
On a geographic basis, sales declined in EMEA (Europe, Middle East & Africa), but grew in other markets like Asia-Pacific and North America. Sales from the EMEA market declined 12.2% to $363.5 million, mainly due to the negative impact of foreign currency fluctuation and pricing pressure in some countries.
Meanwhile, revenues from North America increased 17.3% to $572.5 million, mainly due to new product launches in the US which contributed $106.5 million to revenues. This was partially offset by pricing pressure for existing products like generic versions of Abbott Laboratories’ (ABT) Depakote ER, which is facing additional competition. Increased sales from India and the favorable impact of foreign exchange helped boost Asia-Pacific revenues to $267.9 (up 30.0%).
Mylan’s Generics business should continue performing well. The company has a robust generic pipeline. Mylan currently has 153 abbreviated new drug applications (ANDA) pending approval from the US Food and Drug Administration (FDA). They represent about $95 billion in annual branded sales. Mylan stated that about 45 of these ANDAs are potential first to file opportunities. These opportunities represent more than $24 billion in annual branded sales.
Adjusted gross margins improved to 48% (from 46%), mainly due to new product launches in North America in the Generics division coupled with favorable pricing for EpiPen. Research and development expenses climbed approximately 3.1% to $72 million in the reported quarter. Selling, general and administrative expenses rose 4.9% to $272.2 million.
2010 Outlook Backed
Mylan maintained its earnings (excluding special items) guidance for 2010. The company expects to earn in the range of $1.55 – $1.65 per share.
Our Take & Recommendation
We currently have a Neutral recommendation on Mylan, which is supported by a Zacks #3 Rank (short-term Hold rating). The company holds immense potential in the generics market, as many blockbuster drugs are slated to lose patent exclusivity in the forthcoming years. However, we remain concerned about the Mylan’s high debt burden and pricing pressure and currency fluctuations in Europe
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