3 Reasons Mylan Inc Stock Could Rise

Market highs have been a frequent occurrence so far in 2014, and the healthcare sector has been no stranger to the stock surge. It's safe to say, though, that investors in generic drug giant Mylan (NASDAQ: MYL  ) haven't quite been as satisfied with the year's results.

MYL Chart

MYL data by YCharts.

Mylan's second-quarter earnings miss hasn't helped the stock catch up with competitors -- even as excitement swirls around the drugmaker's major acquisition of a portion of Abbott Laboratories' generic business, a move that is set to slash the buyer's tax burden substantially. However, that acquisition and a pair of upcoming generic drug launches could be the catalysts that spark this sluggish stock's bounce back.

Let's dive into the top three reasons that Mylan stock could rise. But before that, it's important to emphasize that there are no guarantees in the stock market -- Mylan's share price could decline even if everything I'm commenting on below goes well for the firm. So with that in mind, let's consider these three factors.

Can generic Copaxone and Celebrex beef up Mylan's performance?Mylan has a pair of major generic drug launches on tap in the U.S. in the near future.

Copaxone, Teva's success story that Mylan hopes to tap into. Source: Wikimedia Commons

First up is the planned generic version of Teva Pharmaceutical's powerhouse multiple sclerosis drug Copaxone. There's a sizable opportunity here: Copaxone raked in more than $4 billion for Teva last year; while investors can't expect anything close to that when Mylan's copy hits pharmacies, it's still likely to provide a major boost to the company's U.S. generic sales. Mylan's U.S. generic revenue has lagged its international progress lately, with domestic sales gaining only 2.8% year over year in the second quarter. The company has teamed up in the past with India's Natco Pharma to market generic Copaxone in India, so barring any legal surprises, Mylan investors should expect a smooth launch here.

Mylan is also taking aim at Pfizer's (NYSE: PFE  ) star anti-inflammatory agent Celebrex later this year, with the company hoping for a December launch (at the latest) of its generic copy. Teva is also competing for a slice of the take after Pfizer reaped nearly $2 billion in U.S. revenue last year from Celebrex.

Delays to the drug launches played a large part in Mylan's conservative 2014 revenue guidance. Teva in particular has lobbied heavily to stave off Copaxone's generic competitors, and Mylan's leadership noted that its generic launch could be set back until 2015. Still, the drugmaker doesn't expect such a delay to impact its revised full-year guidance – and in the long term, generic forms of Copaxone and Celebrex are poised to add needed muscle to the company's North American business, which made up more than half of its total generics revenue last year.

Celebrex and Copaxone should spice up Mylan's U.S. segment, but it's internationally where this company's making all the right moves -- and none bigger than its market-shaking tax inversion deal inked with Abbott in July.

Just how valuable is the Abbott deal?
Mylan won't be calling the U.S. home for much longer after its groundbreaking deal to snag part of Abbott's generic drug colossus -- and with it, the ability to incorporate in the Netherlands. The company anticipates that re-domiciling across the Atlantic will drop its tax rate to the teens in a few years. That's a major savings coup for the company and its investors. While political questions have raged over tax inversions like this one, Mylan's savings offer serious long-term benefits. Even more interestingly, Mylan projects $200 million of pre-tax savings from operational efficiencies by the end of the third year post-closing.

That's in addition to Abbott's portfolio of nearly $2 billion in annual generic drug revenue in Europe and other global markets. Mylan is already a major player on the continent, which provided 5% sales growth at a constant currency in the second quarter. Mylan CEO Heather Bresch has played up using Abbott's existing infrastructure to augment Mylan's business, particularly in Europe.

The European economy's downturn has had an unintended benefit to generic leaders like Mylan: With branded pharmaceutical prices high, cash-strapped healthcare systems have increasingly turned to generics. In 2012, GBI Research projected that the European generic drug market could grow by more than 47% between 2012 and 2017, exceeding $38 billion in annual value.

There's a big opportunity facing Mylan in the wake of its tax inversion on the continent -- but the most tempting prize might be in the emerging markets that have recently dominated growth story lines in generic drugs.

The untapped potential of emerging markets

Source: Wikimedia Commons.

Even with the Abbott unit in hand, Mylan's leadership is looking for additional growth opportunities. The drugmaker for years has been a strong player in India, one of the top generic drug markets to watch as the country's middle class swells, and the potential to grow in other emerging markets could spell great things for the stock heading forward.

The company's Rest of World segment, which totals sales outside of North America and Europe, has performed strongly, with third-party net sales jumping 11% year over year in the second quarter at a constant currency. Chalk up the company's strength in India once again: In its second-quarter 10-Q filing, Mylan cited a jump in sales of anti-retrovirals in India as contributing strongly to its international success.

Rivals also have keyed in on the power of emerging markets for generic drugs: Abbott made sure to hang on to its generic sales in developing economies in its deal with Mylan. If Mylan can continue its success in the country as the nation's middle class and urban populations continue to increase, investors will have a long-term geographic growth driver even without another major acquisition.

Setting up for future success
Wall Street might be down about Mylan's updated full-year guidance, but don't let this stock's sluggishness relative to its peers in 2014 hold you back. The second quarter provided a downbeat display for the company's U.S. division, but Mylan's upcoming launches of generic versions of Copaxone and Celebrex should help put its domestic sales back on track. Meanwhile, its move across the Atlantic, along with the addition of Abbott's sizable package of generic drug assets, will give Mylan some much-needed tax savings and global punch, particularly as emerging markets develop for growth-hungry generic drug leaders. Keep an eye on Mylan: The year's struggles might just be the setup for a strong push into 2015.

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