Drugmaker Mylan Far From Generic

12/8/2014


  Recent Price
$58
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
18
  Shares (millions)
397
  Long-Term Debt as % of Capital
63%
  52-Week Price Range
$59.60 - $41.26

We dropped generic-drug maker Mylan ($58; MYL) from the Focus, Buy, and Long-Term Buy lists last December because of eroding Quadrix scores and softening revenue growth. Both have since recovered.

The Overall score is up to 91 from 45 at the end of September. Sales growth has accelerated in the past few quarters, helped by product launches and the $1.4 billion acquisition of Agila Specialties in December 2013. Mylan is also benefiting from the confluence of rising utilization and high prices for many generic drugs.

In July, Mylan agreed to pay nearly $6 billion in stock for Abbott Laboratories' ($46; ABT) specialty and generic business in developed countries outside of the U.S. The deal, expected to close in the March quarter, should boost Mylan's annual sales by $2 billion. Although U.S. lawmakers have introduced new rules to make tax inversions more difficult for U.S. companies, Mylan is moving forward with plans to use the transaction to reincorporate itself in the Netherlands.

Mylan has a strong track record for growing cash flow. Cash from operations, up more than 15% in five of the past six calendar years, is up 29% for the first nine months of 2014. Free cash flow has surged 48% this year. The stock, already a Long-Term Buy, is being added to the Buy List.

Business breakdown

Mylan relied on generic drugs for 83% of sales in the first nine months of 2014, with the remainder coming from its more profitable specialty-drug unit. A steady stream of new-product launches is crucial for Mylan, because competition can quickly erode sales and profit margins of generic drugs.

The company currently has 44 first-to-file Abbreviated New Drug Applications with U.S. regulators. Pending approval, Mylan will get 180 days of exclusive rights to sell these drugs before other generic manufacturers can enter the market. The 44 branded drugs in question have annual sales totaling $29.5 billion.

Gilead Sciences ($101; GILD) has approved Mylan to sell a generic form of hepatitis C drug Sovaldi in developing markets, as well as to sell its HIV drug in 112 countries that account for 84% of the world's HIV cases.

Mylan's pricing power could face some resistance in the U.S. In late November, U.S. senators began to investigate the surge in generic-drug prices after a study found that half of them rose in the past year, some by as much as 500%. North America accounts for 51% of Mylan's generic-drug sales.

Analysts' 2015 profit estimates for the broad S&P 500 health-care sector have declined in recent weeks. But revision trends are positive for both the pharmaceuticals industry and Mylan. The consensus expects Mylan to grow earnings per share 16% in 2015.

Mylan earns a middling Value rank of 46. But the shares look attractive relative to peers and their own history. At 18 times trailing earnings, the stock trades 6% below its five-year average and 16% below the median for S&P 500 drugmakers. Mylan shares also trade 17% below their peer-group median relative to estimated 2015 earnings.

An annual report for Mylan Inc. is available at 1000 Mylan Blvd., Canonsburg, PA 15317; (724) 514-1800; www.mylan.com.

MYLAN
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '14
1.16
vs.
0.82
18%
53.05
-
44.80
18 - 15
Jun '14
0.69
vs.
0.68
8%
55.30
-
44.74
19 - 15
Mar '14
0.66
vs.
0.62
5%
57.52
-
41.97
20 - 14
Dec '13
0.78
vs.
0.65
5%
44.73
-
36.97
16 - 13
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
6.91
2.89
0.00
44.73
-
27.38
15 - 9
2012
6.80
2.59
0.00
28.50
-
20.21
11 - 8
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
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
89
46
90
52
92
90

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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