(MYL) Mylan Analyst Reaffirms Shares at Neutral

We have maintained our Neutral recommendation on Mylan Inc. (MYL) with a target price of $19.00 following an appraisal of second quarter 2011 financial results.

Mylan’s second quarter 2011 earnings (excluding special items) of 52 cents per share were above the Zacks Consensus Estimate of 45 cents and also beat the year-ago earnings 37 cents. Earnings growth was driven by an increase in generics revenue and improved gross margins.

Mylan reports revenues from two segments: Generics and Specialty. Generic revenues grew 17% to $1.44 billion in the second quarter of 2011 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 generics market. A large number of high-value branded pharmaceuticals are expected to go off-patent in the next couple of years. These patent expirations should provide additional generic product opportunities.

The company boasts of a robust generic product pipeline. Mylan expects to launch 500 products globally in 2011. We expect the generic segment will post strong sales in the latter half of the year as well as in 2012, benefiting from major launches in the first half. In 2012, Mylan anticipates the launch of more than 500 new products. Mylan believes the new product launches will generate $400 million in revenue in 2011 and almost double that figure in 2012.

Of the 15 limited competition products expected to be launched in 2011, eight have already been launched with 180 days of exclusivity. Important among these are generic versions of Pfizer’s (PFE) Vfend, Shionogi Pharma’s Sular, AstraZeneca’s (AZN) Entocort and Novartis’(NVS) Femara. In Europe, Mylan expects to launch about 360 products in 2011 and about 300 in 2012. An important generic launch was Nexium in France and Italy in the first half of 2011. These new product launches, in combination with easing pricing comparisons, could lead to improved growth trends in Europe in 2012 and beyond.

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 also contribute to top-line growth. Revenue from the Specialty division climbed 6.2% to $131.7 million in the second quarter of 2011, boosted by pricing benefits of the EpiPen Auto-Injector and volume growth of the Perforomist Solution.

However, we remain concerned about the lack of growth in the European generics business. Mylan is witnessing pricing pressure and currency fluctuations in several European markets, which have been a challenge to the performance of this segment over the last few quarters and are expected to continue throughout 2011. We also prefer to remain on the sidelines until we get better visibility on the impact of new product launches in the first half of 2011 on performance in the latter half. Moreover, Mylan faces strong competition and the company could suffer if any other player in this segment succeeds in launching their products ahead of Mylan, including Teva Pharmaceuticals (TEVA), Watson Pharma (WPI), Par Pharmaceuticals (PRX) or Sandoz (the generics arm of Novartis) .

ASTRAZENECA PLC (AZN): 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

TEVA PHARM ADR (TEVA): Free Stock Analysis Report

WATSON PHARMA (WPI): Free Stock Analysis Report

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