Taking on massive debt to swallow Merck KgaA's much larger generic drug business could have killed Mylan (NASDAQ:MYL), and investors punished the company for the decision. But the generic-drug maker, now in the middle of its recovery process, seems on track to compete with the big boys: Teva Pharmaceuticals (NASDAQ:TEVA) and Novartis' (NYSE:NVS) Sandoz.
Revenue was up 12.6%, and that was with a huge currency headwind from Mylan's sizable international presence; at constant currencies, sales were up about 23% year over year. Much of the increased revenue was from the launch of generic versions of Abbott Labs' (NYSE:ABT) anti-seizure drug, Depakote ER, and GlaxoSmithKline's (NYSE:GSK) antidepressant, Paxil CR. The company's fentanyl pain patch is still benefiting from Johnson & Johnson (NYSE:JNJ) and Novartis having to pull their patches from the market. New competitors have come on the market, but Mylan said it has been able to keep customers by being more reliable.
Revenue from those high-margin items and a cutback on research and development spending lead to adjusted operating income (not including last year's goodwill impairment, among other things) that was more than double the year-ago quarter. Combine that with lower interest payments as interest rates have fallen and the company has paid back some of its debt, and you've got a pretty solid quarter.
Mylan raised the bottom end of its 2009 adjusted EPS guidance so that it now expects to earn between $1.00 and $1.10 per share. Even at the low end, that's a healthy 25% increase over last year. Mylan won't be able to grow the bottom line like this forever, but the company looks like it should be able to get a few more cost synergies from the acquisition and is still looking for adjusted EPS of $1.50 to $1.70 in 2010. It's only midway through the digesting of its huge purchase, and investors should be rewarded if Mylan can pull it off.
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