Mylan Inc.’s (MYL) fourth quarter 2010 earnings (excluding special items) of $0.45 per share were in line with the Zacks Consensus Estimate but well above the year-ago earnings of $0.33 per share. Increased revenues led to the rise in earnings in the final quarter of 2010. On a reported basis (including special items), the generic player earned $0.01 per share like a year ago.
Quarter in Details
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. Generics sales (after adjusting inter-segment revenues) increased 5.7% to $1.36 billion in the reported quarter.
Generic third party net sales, derived from sales in North America, Europe, Middle East & Africa (EMEA), and the Asia Pacific,climbed 5.5% to $1.35 billion in the final quarter of 2010. Third party revenues from the Specialty segment increased to $75.7 million.
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 21.4% to $647.5 million in the reported quarter. The increase was mainly attributable to new product launches in the US and Canadian markets. Moreover, results were aided by the inclusion of results from Bioniche Pharma, purchased in September 2010.
Third party net sales from the EMEA market declined 16.7% to $397 million. The decline was mainly attributable to the adverse impact of foreign exchange, pricing pressure in European markets and lack of product launches. Third party net sales in the Asia Pacific market climbed 13.4% to $305.1 million.
Mylan’s Generics business should continue performing well due to its robust generic pipeline. Third party net sales from the Specialty division climbed 33.2% to $75 million, benefiting from increased sales of the EpiPen Auto-Injector.
Adjusted gross margins improved to 47% (from 44%), 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 13.1% to $82.1 million in the reported quarter due to increased expenses on product development. Selling, general and administrative expenses rose 7.8% to $290.2 million.
Annual Results
For the full year 2010, Mylan earned (excluding special items) $1.61 per share, in line with the Zacks Consensus Estimate, but 24% above the 2009 earnings of $1.30 per share. 2010 revenues climbed 7% to $5.45 billion, slightly below the Zacks Consensus Estimate of $5.49 billion.
2011 Guidance Given
Apart from announcing financial results, Mylan, which competes with generic players like Teva Pharmaceutical Industries Limited (TEVA) and Watson Pharmaceuticals Inc. (WPI), also provided a projection for 2011. Mylan expects 2011 adjusted earnings in the range of $1.90-$2.10. 2011 adjusted revenues are projected in the range of $6.1 billion- $6.4 billion. The Zacks Consensus Estimate for 2011 is $1.99 per share on revenues of $6.62 billion.
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.
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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