Mylan Added To Focus List

12/10/2012


  Recent Price
$27
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
11
  Shares (millions)
412
  Long-Term Debt as % of Capital
57%
  52-Week Price Range
$27.50 - $19.31

Branded drugmakers face expiring patents on once-lucrative blockbuster treatments. Crushing budget deficits in the U.S. and Europe force governments to find ways to cut spending. And pharmacy-benefit managers steer customers toward cheaper drugs to help clients cut health costs.

All three factors could help global sales of generic drugs — copycat formulations priced well below their branded counterparts — grow at double-digit annual rates from an estimated $242 billion in sales in 2011. Mylan Laboratories ($27; MYL), the nation's second-largest maker of generic drugs and a member of our Buy and Long-Term Buy lists, is being added to our Focus List.

Business breakdown

Mylan sells 1,100 products worldwide, including about 340 generics in the U.S. Generic drugs generated 87% of Mylan's sales in the first nine months of 2012. Branded specialty treatments, primarily for respiratory ailments and allergies, accounted for the remaining 13%.

The North American generics unit (49% of total sales) has generated double-digit sales growth in each of the last three quarters, and each of the last three fiscal years. Revenue from Europe, Africa, and the Middle East appears to be stabilizing after consistent declines since 2010. At constant currency, sales in the region rose 3% in the September quarter. Government austerity policies in Europe should play to Mylan's strength.

Revenue from specialty drugs jumped 39% in the first nine months of 2012, driven by the EpiPen Auto-Injector for severe allergic reactions. Mylan's EpiPen has 98% of the market, though rivals are working on their own versions.

Rising volumes and a favorable sales mix have fattened gross profit margins in seven of the last eight quarters. Free cash flow more than doubled in the past year. Buybacks trimmed outstanding shares by nearly 5% in the past year, and a fresh $500 million program could slice another 4%.

Mylan's recently upgraded credit rating is investment grade, and the company says it could make a $4 billion acquisition without issuing more stock.

Other growth catalysts include:

• Plans to enter India, a $13 billion market growing 14% a year.

• A partnership with Pfizer ($25; PFE) to sell generic drugs in Japan, potentially generating $1 billion in sales over the next five years.

• Efforts to break into the $32 billion market for generic biological drugs.

• The launch of 47 new drugs in the U.S. during the first nine months of 2012. Mylan waits on approval of about 170 other applications.

• In November, Mylan won a 19% slice of a $667 million contract from South
Africa to provide HIV treatment.

Conclusion

Despite pricing pressures, Mylan expects margins to keep expanding. The company projects per-share-profit growth of 6% to 10% in 2013 and 15% annually over the next six years.

Shares trade at just 11 times trailing earnings, 43% below their three-year average and 24% below the median drug stock. An annual report for Mylan Inc. is available at 1500 Corporate Drive, Canonsburg, PA 15317; (724) 514-1800; www.mylan.com.

MYLAN LABORATORIES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '12
0.83
vs.
0.55
15%
24.67
-
21.20
11 - 10
Jun '12
0.60
vs.
0.52
7%
23.63
-
20.21
11 - 10
Mar '12
0.52
vs.
0.44
10%
23.88
-
20.37
12 - 10
Dec '11
0.53
vs.
0.45
7%
21.84
-
15.49
11 - 8
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
6.13
2.04
0.00
25.46
-
15.49
12 - 8
2010
5.45
1.61
0.00
23.63
-
16.55
15 - 10
2009
5.09
1.30
0.00
19.21
-
9.65
15 - 7
2008
5.14
0.80
0.00
15.49
-
5.75
19 - 7
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
87
68
71
46
70
88

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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