FRX Forest Road Acquisition Corp

Mylan, Inc.’s (MYL) first quarter 2012 earnings (excluding special items) of 52 cents per share beat the Zacks Consensus Estimate by a penny. First quarter earnings increased 18.2% from a year ago.

Higher revenues and gross margin expansion led to the rise in first quarter 2012 earnings. On a reported basis (including special items), the generic player earned 30 cents per share as compared with 23 cents in the year-ago quarter.

The Quarter in Detail

Revenues climbed 10% to $1.59 billion, just above the Zacks Consensus Estimate of $1.58 billion. Mylan reports revenues from two segments: Generics and Specialty.

Generics sales (after adjusting inter-segment revenues) increased 5.2% to $1.42 billion in the reported quarter. Generic third-party net sales, derived from sales in North America, Europe, Middle East & Africa (EMEA) and Asia Pacific, climbed 5.3% to $1.41 billion in the first quarter of 2012.

Specialty segment sales (after adjusting inter-segment revenues) increased 53.5% to $177 million, while third party revenues from the segment increased 67.3% to $162.3 million. The specialty segment was driven by revenues from its flagship product, Epipen auto-injector for severe allergic reactions. The product has a market share of above 95% in the US. 

Along with the results, Mylan announced that the company and Meridian Medical Technologies, a subsidiary of Pfizer (PFE), entered into an agreement with Teva Pharmaceutical Industries Limited (TEVA). As per the terms of the agreement, Teva may launch a generic version of Epipen auto-injector on June 22, 2015, subject to certain regulatory conditions.

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 15.2% to $776.6 million in the reported quarter. The increase was mainly attributable to new product launches, which include the generic version of Forest Laboratories' (FRX) Lexapro.

Third-party net sales from the EMEA market declined 13.7% to $335.6 million. The decline was mainly attributable to pricing and volume pressure in European markets. Third party net sales in the Asia Pacific market climbed 8.2% to $298.7 million.

Adjusted gross margins improved to 48% (from 47%), mainly due to new product launches in North America coupled with favorable pricing for Epipen, partially hampered by pricing pressure in the generic segment globally.

Research and development expenses increased approximately 7.5% to $80.9 million in the reported quarter. Selling, general and administrative expenses rose 20.3% to $336.8 million.

Outlook

Mylan reiterated its earnings guidance of $2.30 to $2.50 per share for 2012. Second-quarter 2012 earnings per share are expected to be in line with the first quarter, while earnings are expected to increase significantly in the third quarter. The 2012 Zacks consensus earnings estimate at $2.42 per share, is in the middle of the guidance range.

The company expects 2013 earnings to be approximately $2.75 per share.

Our Recommendation

We are encouraged by Mylan’s geographic reach and product depth along with a robust generic product pipeline. However, we are concerned about the company’s lackluster performance in the EMEA region. Additionally, with most large branded drugs due to lose patent exclusivity within 2017-2018, we have little visibility on the growth prospects for generic companies like Mylan beyond that time frame.

Thus, we prefer to remain on the sidelines and have a Neutral recommendation on Mylan. The stock carries a Zacks #3 Rank (Hold rating) in the short term.

 
FOREST LABS A (FRX): Free Stock Analysis Report
 
MYLAN INC (MYL): Free Stock Analysis Report
 
PFIZER INC (PFE): Free Stock Analysis Report
 
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research