Mylan Holds Ground on Forecast

First-quarter earnings beat estimates, and the company affirms its guidance.
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Mylan Laboratories

(MYL) - Get Report

reported first-quarter earnings that beat Wall Street's estimates, while revenue, though down from a year ago, slightly exceeded the consensus forecast.

In addition, the company on Tuesday reaffirmed its earnings predictions for the fiscal years ending March 31, 2006, and March 31, 2007.

For the quarter ended June 30, the generic-drug maker earned what it calls adjusted earnings per share of 26 cents on revenue of $323.4 million. The consensus view among analysts polled by Thomson First Call was for a profit of 20 cents a share on revenue of $317.3 million.

Adjusted earnings exclude several items, including costs related to the development and planned licensing of a brand-name blood pressure drug, costs associated with a corporate restructuring and costs related to litigation over two products.

When calculated using generally accepted accounting principles, Mylan earned $42.9 million, or 16 cents a share, compared with a profit of $82 million, or 30 cents a share, for the same period last year. First-quarter revenue fell from $339 million a year ago.

For the fiscal year ending March 31, Mylan predicts adjusted earnings in the range of 92 cents to $1.15 a share. The consensus forecast is 94 cents. The company continues to expect adjusted income of $1.20 to $1.74 a share for the fiscal year ending March 31, 2007. The consensus estimate is $1.23.

Shares of Mylan rose 17 cents to $18.55 by midmorning Tuesday.

Many recent

headline-grabbing events that affected Mylan weren't factored in to the first quarter -- such as the $1 billion stock buyback, the preliminary results of which were announced Sunday, and the warning from the Food and Drug Administration that it was

investigating deaths associated with a narcotic pain drug delivered via a skin patch.

Mylan has been selling a generic version of the fentanyl transdermal patch for six months. The brand-name patch is called Duragesic, which is made by

Johnson & Johnson

(JNJ) - Get Report

.

A recent report from Morgan Stanley says the pain patch could provide $105 million, or 8% of corporate sales, for the fiscal year ending March 31. The firm says the patch could account for 15 cents a share for the fiscal year, or about 16% of estimated earnings.

Banc of America Securities says the pain patch has become Mylan's biggest product and could yield $256 million in revenue for the current year. If the patch were removed from the market, Mylan could take a hit of 42 cents a share, Banc of America believes.

Robert J. Coury, Mylan's vice chairman and CEO, told analysts during a telephone conference call Tuesday that there have been "no developments brought to our attention as to the safety" of the company's patch. He added that there have been "a very small number of adverse events" associated with the Mylan patch.

Coury said the safety issues surrounding the use and potential misuse of fentanyl is "well known," adding that he believes the reports of patch-linked deaths are based on the FDA's review of records involving Duragesic.

He offered no comments on the potential economic impact on Mylan of the FDA's investigation or its recent public health advisory, except to note that tougher labeling of fentanyl patches could cause a delay in other generic fentanyl patches coming to the market.

The FDA says it is trying to determine "if the reported adverse events may be related to inappropriate use of the patch or factors related to the quality of the product." The agency says it is working with the patch makers "to fully evaluate the risks associated with their use and to develop a plan to help patients avoid accidental fentanyl overdose."

In addition, J&J recently sent a letter to health care professionals, updating and strengthening warnings and instructions about using Duragesic.

Finally, no analysts' meeting with Mylan would be complete without some comment about Carl C. Icahn, who has been the company's biggest shareholder -- with a 9.8% holding -- as well as its biggest nemesis.

On Monday, Icahn confirmed that he had tendered his shares for the buyback; and if preliminary results hold true, the company will buy back 94% of his shares because the repurchase was oversubscribed. Icahn took credit for a number of Mylan's actions -- including the buyback, the canceling of the bid for

King Pharmaceuticals

(KG)

and the raising of the dividend.

On Tuesday, Coury dismissed Icahn's remarks, saying the Mylan board took various strategic steps to improve value for all shareholders and not as a reaction to Icahn.