Mylan Looks Mixed Up

Turns out the drugmaker might be facing more competition than it thought.
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Mylan Laboratories

(MYL) - Get Report

found itself with egg on its face just hours after suggesting its position in the market for painkilling patches should be secure.

The company said Monday morning that it didn't expect any additional players, at least through next March, in the fentanyl patch market, repeating a view it offered last month. However, the Food and Drug Administration has determined that, in fact, another company, Greece's Lavipharm, can compete with the Mylan patch.

Mylan has had the generic-patch market all to itself, competing only with the brand-name version, Duragesic, from

Johnson & Johnson

(JNJ) - Get Report

. But the FDA's list of generic drugs shows that Lavipharm, which has an affiliate in New Jersey, has received approval for a generic fentanyl patch in the same four dosage-strengths offered by Mylan and J&J.

By late afternoon, shares of Mylan had fallen $3.04, or 13.2%, to $19.97, with most of the decline taking place after 12:30 p.m. EDT. The stock fell as low as $19.36. Trading volume of 13.2 million shares was more than seven times the daily average.

Robert Coury, Mylan's vice chairman and CEO, said the heavy trading was an "overreaction," and he reaffirmed guidance that the company should earn $1.35 to $1.55 for the fiscal year ending March 31.

"We've stated many times that we factored additional fentanyl competition into our fiscal 2007 guidance," said Coury. "We remain highly confident in our guidance for fiscal 2007, which represents at least a 35% increase in our earnings per share."

Lavipharm says the twice-a-week patch can provide relief for up to three days for "moderate-to-severe pain," such as cancer-caused pain. Lavipharm submitted an application to the FDA in January 2004.

The disclosure hit Wall Street by surprise, especially since Mylan issued a press release at 7:45 a.m. EDT saying that it "no longer anticipates additional generic transdermal fentanyl approvals" for the 2007 fiscal year.

JP Morgan analyst Adam Greene, in a brief note to clients, says his model for Mylan "is now under review." He has a neutral rating on the stock. He doesn't own shares, but his firm has had a recent investment banking relationship.

The fentanyl patch played a major role in Mylan's

strong first-quarter financial report and the company's decision to raise its earnings predictions.

Before the Lavipharm revelation, Mylan said it was maintaining its EPS outlook, excluding one-time items, for the fiscal year. "The range of guidance already allows for the potential of increased earnings based on a lack of additional generic transdermal fentanyl approvals," the company said.