Mylan Inc. Reports Adjusted Diluted EPS of $0.37 for the Three Months Ended June 30, 2010

PITTSBURGH, July 28 /PRNewswire-FirstCall/ -- Mylan Inc. (Nasdaq: MYL) today announced its financial results for the three and six months ended June 30, 2010.

Financial Highlights

• Adjusted diluted earnings per share (EPS) of $0.37 for the three months ended June 30 compared to $0.32 for the same prior year period;
• Adjusted diluted EPS of $0.73 for the six months ended June 30 compared to $0.65 for the same prior year period;
• Total revenues of $1.37 billion for the three months ended June 30 compared to $1.27 billion for the same prior year period;
• Total revenues of $2.66 billion for the six months ended June 30 compared to $2.48 billion for the same prior year period;
• On a GAAP basis, diluted EPS of $0.16 for the three months ended June 30 compared to $0.19 for the same prior year period;
• On a GAAP basis, diluted EPS of $0.36 for the six months ended June 30 compared to $0.42 for the same prior year period.

Mylan Chairman and CEO Robert J. Coury commented: “The second quarter marks yet another quarter where we have met or exceeded our financial expectations. In our view, this quarter was exceptionally strong as it continues to demonstrate the underlying strength of our overall business. We were able to deliver adjusted diluted EPS of $0.37 despite many challenges, including the delay of certain product approvals, global pricing pressures and the impact of negative currency trends. Considering these results and recent announcements, we are now able to narrow our 2010 adjusted diluted EPS guidance range to $1.55 to $1.65.”

Coury continued: “In addition, even though we haven’t provided formal earnings guidance for 2011, we remain confident in our forecast to achieve our adjusted diluted EPS of $2.00 by the end of 2011. Our confidence is based on the strong momentum of our successful operating performance to date, coupled with additional visibility and no anticipated material change in the outlook in our business. Our continued forecast for 2011 incorporates and is in spite of the negative movement of overall currency exchange rates since we gave an original forecast in February.”

2010 Guidance

The company narrowed its forecasted range of adjusted diluted EPS to $1.55 - $1.65 from $1.50 - $1.70. The remaining components of the company’s adjusted guidance, along with a comparison of exchange rates used in preparing both the original and revised guidance, are as follows:

Financial Summary

Mylan previously had three reportable segments, “Generics”, “Specialty” and “Matrix.” The Matrix Segment consisted of Matrix Laboratories Limited (Matrix), which was previously a publicly traded company in India, in which Mylan held a 71.2% ownership stake. Following the acquisition of additional interests in Matrix and its related delisting from the Indian stock exchanges, Mylan now has two reportable segments, “Generics” and “Specialty.” Mylan changed its segments to align with how the business is being managed after those changes. The former Matrix Segment is included within the Generics Segment. Information for earlier periods has been recast.

Total third party revenues for the quarter ended June 30, 2010, increased $101.6 million, or 8% to $1.37 billion from $1.27 billion in the same prior year period. The net impact of foreign currency translation on consolidated revenues for the current quarter was not significant. Total third party revenues include both net revenues and other revenues from third parties. Other revenues for the three months ended June 30, 2010, and 2009 were $12.0 and $11.2 million, respectively.

A tabular summary of our revenues for the three months ended June 30, 2010, and 2009, is included at the end of this release.

Generics third party net revenues, which are derived from sales in North America, Europe, the Middle East and Africa (collectively, EMEA) and Asia Pacific were $1.23 billion in the current quarter, compared to $1.13 billion in the same prior year period.

Third party net revenues from North America were $588.8 million for the current quarter, compared to $525.5 million for the comparable prior year period, representing an increase of $63.3 million or 12.0%. New products launched in the U.S. and Canada contributed sales of $91.9 million in the current quarter. Additionally, volume on certain existing products increased primarily as a result of Mylan’s ability to remain a source of stable supply as certain competitors experienced regulatory and supply issues. Partially offsetting these increases was unfavorable pricing on certain other existing products, including divalproex sodium extended-release (“divalproex ER”) tablets, the generic version of Abbott Laboratories’ Depakote® ER, which Mylan launched in the first quarter of calendar year 2009. Additional generic competition on divalproex ER entered the market in August 2009. As such, sales of divalproex ER in the current quarter were significantly lower than the same quarter in the prior year.

Third party net revenues from EMEA were $378.6 million for the three-month period ended June 30, 2010, compared to $392.7 million for the comparable prior year period, a decrease of $14.1 million, or 3.6%. However, foreign currency translation had a negative impact on sales for the current quarter, principally reflecting the weakening of the Euro against the U.S. Dollar. Translating current quarter third party net revenues from EMEA at prior year exchange rates would have resulted in year-over-year growth, excluding the effect of foreign currency of approximately $11 million, or 3%. This increase was driven by new product launches in several markets as well as favorable market dynamics in certain countries, including, most significantly, Italy.

Sales in Asia Pacific are derived from Mylan’s operations in India, Australia, Japan and New Zealand. Asia Pacific third party net revenues were $265.1 million for the three-month period ended June 30, 2010, compared to $215.9 million for the comparable prior year period, an increase of $49.2 million, or 22.8%. However, foreign currency translation had a positive impact on sales for the current quarter, reflecting the strengthening of regional currencies against the U.S. Dollar. Excluding the effect of foreign currency, calculated as described above, the increase was approximately $27 million, or 12%. This increase is primarily driven by higher third party sales in India and seasonal increases in Japan.

Specialty, consisting of Mylan’s Dey business, which focuses on the development, manufacture and marketing of specialty pharmaceuticals in the respiratory and severe allergy markets, reported third party net revenues of $124.0 million, an increase of $2.3 million or 1.9% over the comparable prior year period of $121.7 million. The increase was primarily the result of higher sales of Dey’s EpiPen® Auto-Injector.

Intercompany sales by Specialty totaled $17.2 million in the current quarter compared to $7.1 million in the same prior year period. The increase is due to the fact that, beginning in 2010, certain generic products previously sold to third parties by Specialty are now sold to Mylan subsidiaries in North America who, in turn, sell the products to third parties. Excluding the sale of such products from 2009 third party revenues would have resulted in an increase in the current quarter of $17.6 million or 14.0%.

Gross profit for the three months ended June 30, 2010, was $541.9 million, and gross margins were 39.6%. For the three months ended June 30, 2009, gross profit was $527.8 million, and gross margins were 41.7%. Gross profit for the current quarter is impacted by certain purchase accounting related items recorded during the three months ended June 30, 2010, of approximately $71.3 million, which consisted primarily of amortization related to purchased intangible assets associated with acquisitions. Excluding such items, gross margins would have been approximately 44.8%. Prior year gross profit is also impacted by similar purchase accounting related items in the amount of $70.1 million. Excluding such items, gross margins in the prior year would have been approximately 47.2%. This decrease in gross margin is primarily the result of lower revenues from divalproex ER, which was launched during the three months ended March 31, 2009, and contributed high margins during the period of exclusivity.

Earnings from operations were $194.6 million for the three months ended June 30, 2010, compared to $174.7 million for the same prior year period. Excluding the impact of purchase accounting related items in both periods, as mentioned above, earnings from operations increased to $265.9 million in the current quarter from $244.8 million in the prior year quarter. This increase was driven by higher gross profit in the current year as well as reductions in research and development expense (R&D) and selling, general and administrative costs (SG&A). Also included in the current quarter is $12.1 million of expense related to the settlement of litigation, compared to litigation settlement income of $0.6 million in the prior year quarter.

Interest expense for the three months ended June 30, 2010, totaled $78.4 million, compared to $78.2 million for the three months ended June 30, 2009. In March 2009, we pre-paid all of our required 2010 principal payments on our term debt, and in December 2009, we pre-paid all of our required 2011 principal payments on our term debt. The effect of the pre-payments was offset by the effect of the debt offering in the current period. Included in interest expense for the current quarter and the comparable prior year period are $11.4 million and $10.7 million of accretion of the discounts on our convertible debt instruments.

Other (expense) income, net, was expense of $15.2 million in the current quarter compared to income of $25.3 million in the comparable prior year period. Included in the current quarter are charges associated with the termination of certain interest rate swaps totaling $7.4 million and the write-off of previously deferred financing fees of $7.6 million, in conjunction with the debt offering during the quarter. In the prior year quarter, other income consisted primarily of a favorable adjustment of $13.9 million to the restructuring reserve as a result of a reduction in the estimated remaining spending on accrued projects, as well as a net gain of $10.4 million realized on the termination of two joint ventures.

EBITDA, which is defined as net income (loss) (excluding the non-controlling interest and income from equity method investees) plus income taxes, interest expense, depreciation and amortization, was $281.7 million for the quarter ended June 30, 2010, and $299.1 million for the quarter ended June 30, 2009. After adjusting for certain items as further discussed below, adjusted EBITDA was $334.7 million for the current three-month period and $316.6 million for the same prior year period.

For the six months ended June 30, 2010, Mylan reported total revenues of $2.66 billion compared to $2.48 billion in the comparable prior year period. Third party net revenues for the current quarter were $2.63 billion compared to $2.42 billion for the same prior year period, representing an increase of $210.5 million, or 8.7%. Sales were favorably impacted by the effect of foreign currency translation, primarily reflecting stronger functional currencies in certain subsidiaries, primarily those in Australia, Japan, India and Canada compared to the U.S. dollar. The impact of foreign currency translation related to the Euro was insignificant between the two comparative periods. Translating current year third party net revenues at prior year exchange rates would have resulted in year-over-year growth excluding foreign currency of $146 million, or approximately 6%.

Other revenues from third parties for the six months ended June 30, 2010, were $26.3 million compared to $52.7 million in the same prior year period, a decrease of $26.5 million, or 50.2%. During the six months ended June 30, 2009, within Generics, we recognized $26.0 million of incremental revenue resulting from the cancellation of product development agreements for which the revenue had been previously deferred. There was no such revenue recognized during the current year period.

A tabular summary of our revenues for the six months ended June 30, 2010, and 2009, is included at the end of this release.

Generics third party net revenues were $2.43 billion in the current six months, compared to $2.22 billion in the same prior year period.

Third party net revenues from North America were $1.14 billion for the six-month period, compared to $1.07 billion for the comparable prior year period, representing an increase of $66.3 million, or 6.2%. This increase was driven by sales contributed from new products in the U.S. and Canada in the amount of $148.5 million, and increased revenues on certain products as a result of Mylan’s ability to remain a source of stable supply as certain competitors experienced regulatory and supply issues. Partially offsetting these increases was unfavorable pricing on certain other products, most significantly divalproex ER.

Third party net revenues from EMEA were $785.5 million for the six-month period ended June 30, 2010, compared to $746.4 million for the comparable prior year period, an increase of $39.1 million, or 5.2%. This increase was driven by new product launches in several European markets, as well as favorable market dynamics in certain countries, particularly Italy and the U.K., partially offset by unfavorable pricing.

In Asia Pacific, third party net revenues were $501.2 million for the six-month period ended June 30, 2010, compared to $401.8 million for the comparable prior year period, an increase of $99.4 million, or 24.7%. However, excluding the favorable effect of foreign currency, calculated as described above, the increase was approximately $47 million, or 12%. This increase is primarily driven by higher third party sales from India and Japan.

Specialty reported third party net revenues of $206.7 million, an increase of $5.7 million, or 2.8% over the comparable prior year period of $201.0 million. This increase was the