MYLAN INC. (MYL) Courtney RossDate: 11/26/2009 Consensus

EstimateTTM 12/09 12/10

Sector: Health Care EPS 102.64

1.25 1.52

Industry: Pharmaceuticals & Biotechnology

P/E 113.67

14.63 12.03

Current Price: 18.29 Long Term Growth Rate:

18.71

52 Wk Price Range:

7.69-18.43 Ratio Analysis

Co. Indus.

Sector

SP500

Ave. Daily Vol: 3.88M/7.34M P/E (TTM) 113.67

3.65 4.95 120.36

Beta: 0.53 P/S (TTM) 1.13 0.57 1.38 2.04Market Cap: 5.59B P/B (MRQ) 1.83 1.58 2.02 2.55Shares Out: 305.58M ROA

(TTM)1.78 1.41 2.30 3.66

Inst. Ownership %: 95% EBO Valuation 63.82Div Yld: - Recommendation

: BUY

Debt/Equity: 1.87 Stop-loss Price: 15.54(15%)Member S&P 500? Yes Price 6-mo

prob12-mo prob

Target Price

26.75 81% 99%

1

Investment Thesis

Mylan Inc. is the main distributer of the EpiPen, which is a auto-injector of epinephrine for people who are having a severe allergic reaction.

Mylan Inc. is also the main distributor of drugs that specifically are used to treat HIV/AIDS and are constantly working to find a cure for HIV/AIDS.

Mylan Inc. is extremely diversified throughout the medical field manufacturing everything from anti-bacterials to medications for more common illnesses to major life-threatening illnesses.

Mylan Inc. operates within the generic pharmaceuticals segment of the market, so it is offering similar products, without the brand name and for a much cheaper price.

SummaryFundamental Valuation:

Bullish – The EBO value is $63.82 which indicates that the stock price is undervalued.

Relative Valuation:Bullish – All indicators were bullish with the exception of the P/E ratio which was neutral and the value ratio which was bearish.

Technical Analysis:Bullish – All indicators were bullish with the exception of Bollinger bands which were bearish/neutral.

Earnings Analysis:Bullish – All indicators were bullish and positive.

Analyst Recommendations:Bullish/Neutral – 58.82% recommendation to buy/outperform and 41.17% to hold.

Institutional Ownership: Bullish – There has been an increase in institutional ownership of the stock.

Piotroski Analysis:

Company SummaryMylan Inc., along with many of its subsidiaries are a global pharmaceutical company that develops, licenses, manufacturers, markets and distributes generic, brand and branded generic pharmaceutical products.1 In May of 2009 Mylan Inc. acquired Matrix Laboratories limited, which became its own branch of Mylan they simply call Matrix. Matrix manufactures and supplies API to Mylan’s own products as well as distributing them to other companies. Mylan operates through three different segments: the Generics segment, the Matrix segment, and the Specialty segment.2 Mylan has over 900 individual products which it distributes to more than 140 different countries.3 Mylan is diversified in the array of therapeutic categories as well as dosage and delivery systems. Mylan distributes to North America, EMEA, Australia, Japan, and NewZealand.

4

Competition and StrategyMylan Inc. and Pfizer Inc. operate on many of the same levels, but many different levels as well. Mylan specifically operates to assist in the many medical problems for humans, while Pfzier operates within human and animal fields. Mylan is only competing with Pfizer within the Pharmaceuticals division. Both Mylan and Pfizer work to discover, develop, manufacture, market, and deliver pharmaceutical drugs

1 http://www.reuters.com/finance/stocks/companyProfile?symbol=MYL.O2 http://www.reuters.com/finance/stocks/companyProfile?symbol=MYL.O

3 www.mylan.com4 Mylan Inc. 2008 Annual Report from www. Mylan.com

2

to many countries around the world. Pfizer is also directly competing with Mylan in the fight against HIV/AIDS in finding a cure and manufacturing a treatment. Pfizer directly competes with Mylan in the production of treatments in areas such as cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases, urology and endocrine disorders. The competitive advantage Mylan has against Pfizer is that Mylan is operating within the generic brand part of the market while Pfizer is more concentrated on the brand name. Mylan is offering comparable products for much less cost to the consumers.

Johnson & Johnson and Mylan Inc. are both focused on discovering and manufacturing different health care products. Although Johnson& Johnson is not only focused on pharmaceuticals as Mylan is. Johnson & Johnson operates on three different segments including: Consumer, Pharmaceuticals, and Medical Devices and Diagnostics. Mylan is only competing with Johnson & Johnson within their pharmaceutical segment. Johnson & Johnson’s pharmaceutical segment focuses on anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. Of all of these areas Mylan only competes on anti-infective, cardiovascular, gastrointestinal, oncology, and urology.

GlaxoSmithKline plc is one of Mylan’s closest competitors because of their sale of generic branded drugs. GlaxoSmithKline PLC started to manufacture and sell these generic branded goods when they acquired Bristol Myers Squibb Company in July of 2009. Bristol Myers Squibb Company. On account that this is a recent acquisition, Mylan still has most of the market for the generic drugs. GlaxoSmithKline operates on two segments with are Pharmaceuticals, which is the only one that competes with Mylan Inc., and Consumer Healthcare. GlaxoSmithKline also operates globally in 114 countries and sells their products in 150 different countries.5 Within their pharmaceutical segment they concentrate on respiratory, central nervous system, anti-virals, anti-bacterials, metabolic, vaccines, cardiovascular and urogenital, oncology and emesis.6 They only compete with Mylan on the levels of central nervous system, anti-virals, anti-bacterials, cardiovascular, urogenital, and oncology. Within these areas are the only ones that Mylan has direct competition in the creation/discovery, development, manufacturing and marketing these products.

Watson Pharmaceuticals and Mylan Inc. are direct competitors but actually are working on a joint venture together to acquire Somerset Pharmaceuticals Inc. This instance emphasizes the fact that in the healthcare field while companies are still competing, they help one another out a lot as well. Watson Pharmaceuticals operates in three different segments including, generic, in with it competes with Mylan Inc., branded, and distribution. Watson Pharmaceuticals has a large market share of the generic drug market as well as Mylan. Watson Pharmaceuticals and GlaxoSmithKline are by far Mylan’s closest competitors within the market. The generic drug segment of Watson Pharmaceuticals creates 58% of the revenues. This makes it one of the largest segments and the one most concentrated on within the company. Watson Pharmaceuticals is constantly trying to acquire different

5 www.reuters.com GlaxoSmithKline overview6 www.reuters.com GlaxoSmithKline overview

3

smaller companies with better technologies and different drugs to add to their team. Along with the joint venture with Mylan Inc., they are working on getting licensing agreements multiple different companies to allow for the growth of their company. The generics segment’s revenues come primarily from royalties and commission. A portion of those royalties come from GlaxoSmithKline’s sale of a few drugs. Watson Pharmaceuticals is by far Mylan Inc.’s largest competitor.

Historical Revenue and Earnings:

Historical Revenue Historical EarningsFY 09/12 FY 08/12 FY 07/12 FY 09/12 FY 08/12 FY 07/12

1st Quarter

1,209.9 1,074.5 NA $0.23 ($1.47) NA

2nd Quarter

1.267.0 1,203.1 546.3 0.19 (0.05) 0.32

3rd Quarter

1,264.1 1,656.8 477.1 (0.13) 0.60 0.60

4th Quarter

NA 1,203.2 1,155.3 NA (0.13) (5.04)

Total 3,741.0 5,137.6 2.178.8 $0.29 ($1.05) ($4.12)

Historical revenues do not have much of a pattern, and neither does historical earnings. Mylan Inc. is growing quickly from 2007 to 2008 and has leveled out from there. This could be because of the poor state of the economy. Historical earnings become less negative from 2007 to 2008 and then become positive in 2009.

4

I. Fundamental Valuation

PARAMETERS FY1 FY2 LtgEPS Forecasts 1.25 1.52 18.71% Model 1: 12-year forecasting horizon (T=12).Book value/share (last fye) 8.87 and a 7-year growth period.Discount Rate 4.44%Dividend Payout Ratio 0.00%Next Fsc Year end 2010Current Fsc Mth (1 to 12) 11Target ROE (industry avg.) 10.60%

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Long-term EPS Growth Rate (Ltg) 0.1871 0.1871 0.1871 0.1871 0.1871Forecasted EPS 1.25 1.52 1.80 2.14 2.54 3.02 3.58Beg. of year BV/Shr 8.870 10.120 11.640 13.444 15.586 18.129 21.148Implied ROE 0.150 0.155 0.159 0.163 0.167 0.169

(Beg. ROE, from EPS forecasts) 0.141 0.150 0.155 0.159 0.163 0.167 0.169 0.157 0.144 0.131 0.119 0.106(ROE-r) 0.097 0.106 0.111 0.115 0.119 0.122 0.125 0.112 0.100 0.087 0.074 0.062(1-k)*(ROEt-1) 0.000 0.141 0.150 0.155 0.159 0.163 0.167 0.169 0.157 0.144 0.131 0.119

1.000 1.141 1.312 1.516 1.757 2.044 2.384 2.788 3.225 3.690 4.175 4.6700.097 0.121 0.145 0.174 0.209 0.250 0.298 0.313 0.321 0.321 0.310 0.288

0.044 0.044 0.044 0.044 0.044 0.044 0.044 0.044 0.044 0.044 0.044 0.044 0.0441.044 1.091 1.139 1.190 1.243 1.298 1.355 1.416 1.478 1.544 1.613 1.684

0.000PV(growth*AROE) 0.09 0.11 0.13 0.15 0.17 0.19 0.22 0.22 0.22 0.21 0.19 0.17

1.09 1.20 1.33 1.48 1.64 1.84 2.06 2.28 2.50 2.70 2.90 3.07

(Assume this yr's AROE forever) 2.08 2.49 2.87 3.30 3.78 4.33 4.95 4.98 4.90 4.68 4.33 3.85(P/B if we stop est. this period) 3.17 3.70 4.20 4.77 5.43 6.17 7.01 7.26 7.39 7.38 7.23 6.91

29.30 34.11 38.77 44.07 50.09 56.94 64.72 67.04 68.24 68.17 66.71 63.82

8.87 10.12 11.64 13.44 15.59 18.13 21.15 24.73 28.61 32.73 37.03 41.421.25 1.52 1.80 2.14 2.54 3.02 3.58 3.88 4.12 4.30 4.39 4.39

0.216 0.187 0.187 0.187 0.187 0.187 0.082 0.063 0.043 0.022 -0.001

Inputs:

1. EPS Forecasts and long-term growth rate (LTG) 1.25 and 1.52 with a long-term growth rate of 18.71%

2. Book value per share derived from 2703.5 of book value of equity and 304.73 outstanding common shares.

3. Discount rate: 4.16%+0.53(9.5%-4.16%)4. Dividend payout ratio is zero, the company does not payout dividends5. Next fiscal year-end is 20106. Current fiscal month is November (11)7. Target ROE= 10.60 %

Output and Sensitivity Analysis:1. Based on these parameters, a 12 year forecasting horizon and a 7 year

growth period, the EBO valuation is over the current price by a significant amount. This is indicating that the stock price is extremely undervalued.

2. Changing the discount rate to 9.6% gets the current market price of the stock.

3. Changing the growth rate 4.00% decreases the EBO valuation to $46.13. Changing the growth rate to 0.05% decreases the EBO valuation to $42.79.

4. Changing the industry ROE to 4.99% brings the EBO valuation to $18.20 which is extremely close to the market value of the stock.

5

II. Relative Valuation

Comparables

Mean FY2

Earnings Estimate Forward Mean LT PEG P/ B ROE Value

Ticker Name Mkt Cap Current Price (next fiscal year) P/ E Growth Rate (MRQ) 5 yr ave Ratio P/ S

1 PFE Pfizer Inc. 147.27 18.25 2.23 8.18 2.00% 4.09 2.23 13.83% 0.16 3.21

2 JNJ Johnson & Johnson 173.52 62.89 4.93 12.76 7.43% 1.72 3.44 28.12% 0.12 2.87

3 GSK GlaxoSmithKline plc 107.13 42.26 122.87 0.34 5.95% 0.06 7.15 61.79% 0.12 2.44

4 WPI Watson Pharmaceuticals Inc. 3.92 36.96 2.82 13.11 13.02% 1.01 1.70 2.24% 0.76 1.48

MYL Mylan Inc. 5.5 18.01 1.52 11.85 18.71% 0.63 1.80 1.64% 1.10 1.11

Implied Price based on: P/ E PEG P/ B Value P/ S

1 PFE Pfizer Inc. $12.44 $116.37 $22.31 $2.65 $52.08

2 JNJ Johnson & Johnson $19.39 $48.83 $34.42 $2.01 $46.57

3 GSK GlaxoSmithKline plc $0.52 $1.64 $71.54 $1.90 $39.59

4 WPI Watson Pharmaceuticals Inc. $19.92 $28.63 $17.01 $12.45 $24.01

High $19.92 $116.37 $71.54 $12.45 $52.08

Low $0.52 $1.64 $17.01 $1.90 $24.01

Median $15.91 $38.73 $28.37 $2.33 $43.08

Indicator InterpretationP/E Neutral – Mylan Inc. has a P/E ratio that is right in the middle of

the other four competitors stocks. This does not have a bullish or a bearish indicator to it.

PEG (P/E/G) Bullish – The PEG ratio suggests that the stock is “fairly valued,” but it is very close to being “undervalued.” This could indicate high risk, or undervalued.

P/B Bullish – The P/B ratio suggests that Mylan Inc. has a low ROE is high risk or the stock is undervalued. Mylan Inc. had one of the lowest P/B ratios of all of the competitors stocks.

Value (P/B/ROE)

Bearish – Mylan Inc. has a very high Value ratio which could possibly indicate that it is a low risk stock and is over-valued. Although this could possibly be because Mylan Inc. did not have a P/B ratio so the industry P/B was used.

P/S Bullish – Mylan Inc. has the lowest P/S ratio of all of the competitors stocks. This could indicate a lower profit margin, high risk, or possibly undervalued.

Summary Bullish – The majority of the relative valuation indicators being bullish, the overall valuation is bullish. The P/E ratio was a neutral indicator because of being right in the middle of all of the other competitors indicators.

6

III. Technical Analysis

Chart 1: Bollinger Bands

Slow Stochastics

Chart 2: Exponential Moving Average (EMA)

MACD

Chart 3: Linear Regression

7

Momentum

Indicator InterpretationBollinger Bands

Bearish/Neutral – The stock price is near the upper Bollinger band and is now decreasing, but the overall trend of the Bollinger bands is increasing.

Stochastics Bullish – The K% line is increasing showing that Mylan Inc. stock price is increasing. The K% line has recently crossed the D% line and the gap between the two is increasing showing the positive trend in Mylan Inc. stock price. The D% line and the K% line are both above the 80% mark.

Moving Averages

Bullish – The overall trend of the EMA is increasingly positive. The stock price is above the EMA which indicates in the short run the stock price will decrease, but the long-term trend is continuously positive.

MACD Bullish – The EMA and the MACD lines are both above zero and increasing which are both Bullish signs. The MACD is also above the signal line which is bullish.

Regression Bullish – The overall trend of the regression line is positive which is a bullish indicator, and the stock price is above the regression line which is also bullish. The gap between the stock price and the regression line is decreasing, which is a slightly bearish sign.

Momentum Bullish – The momentum line is above 100 which is bullish and it is also horizontal which is neutral.

8

IV. Earnings AnalysisEarnings Surprises

Sept-09:(Last qtr)

June-09:(2 qtrs prior)

March-09:(3 qtrs prior)

Dec-08:(4 qtrs prior)

Sept-08:(5 qtrs prior)

Estimate 0.27 0.29 0.28 0.14 0.11Actual 0.32 0.32 0.33 0.26 0.23Difference 0.05 0.03 0.04 0.12 0.12

Mean Earnings EstimatesDate: Dec-

09Date: Mar-

10Date: Dec-

09Date: Dec-

10LT Growth

RateEarnings 0.29 0.34 1.25 1.52 18.71%# Estimates 16 6 17 17 6

Earnings Per Share Estimates Revisions SummaryLast Week Last 4 Weeks

Revised Up Revised Down

Revised Up Revised Down

Quarter ending 12/09 0 0 13 0Quarter ending 03/10 0 0 1 1Year ending 12/09 0 0 15 0Year ending 12/10 0 0 10 0

Mylan Inc. has had positive earnings surprises for the past five quarters. This is a very bullish indicator. The earnings surprises in 2008 were very large and had positive results on the stock price. The company is outperforming its estimates every quarter. The earnings estimate is increasing every quarter with the exception of this most recent quarter in which it drops .02. The actual earnings were growing from five quarters prior to three quarters prior. The actual earnings dropped .01 then stayed steady at .32 for the next two quarters.

Mylan Inc. has positive mean earnings estimates for this quarter and past quarters which is another bullish sign for Mylan Inc. This indicates continuous growth for the company in the upcoming years.

Mylan Inc. has very bullish earnings per share estimates revisions. Last week there were no revisions up or down. In the past four weeks there have been many revisions up, and only one revision down. This shows that the company is consistently increasing its estimates for future earnings.

9

V. Analysts’ RecommendationsCurrent 1 Month Ago 2 Months Ago 3 Months Ago

Buy 5 5 5 6Outperform 5 5 5 5Hold 7 7 7 6Underperform 0 0 0 0Sell 0 0 0 0No Opinion 0 0 0 0Mean Rating 2.12 2.12 2.12 2.00

Over the past couple of months the analyst recommendations have been fairly spread out between buy, outperform, and hold with no recommendations to sell or underperform. Three months ago there were more recommendations towards buy, but those moved to a hold position. These are bullish/neutral indicators for Mylan Inc. Analysts have a 58.82% recommendation for a buy/outperform while 41.17% are recommending a hold for the time being. This is a fairly bullish indicator for the company.

10

VI. Institutional Ownership

# of Holders % Beg. Holders Shares % SharesShares Outstanding #DIV/ 0! #DIV/ 0!# of Holders/ Tot Shares Held 606 100.33% 314,407,812 0.00%

# New Positions 64 10.60%# Closed Positions 62 10.26%# Increased Positions 258 42.72%# Decreased Positions 218 36.09%Beg. Total Inst. Positions 604 100.00% 309,062,333 #DIV/ 0!

# Net Buyers/ 3 Mo. Net Chg 40 54.20% 5,345,479 #DIV/ 0!

The institutional ownership for Mylan Inc. is fairly bullish. There is an increasing about of buy positions and a fewer amount of sell positions. There has been a 54.2% increase in institutional ownership with this stock which shows a bullish indicator for this stock. Part of this table is not available because of the fact that Mylan Inc. does not issue dividends. This is because it is more profitable for shareholders to have that money go back towards the company to help it grow, which is bullish. There has been 40 new positions created which could indicate that the stock is overvalued.

11

VII. Piotroski Analysis

A. P/B ratio and quintile (1=growth, high P/B; 5=value, low P/B): 1.83 Third Quintile

B. Piotroski Score: 6

Piotroski Item Variable needed to compute Value Points1. Positive net income TTM net income 49.7 1

2. Positive cash flow TTM cash flow 681.8 1

3. Earnings Quality 1

4. Decreasing Debt Debt/assets most recent ann figure

74% 1

Debt/assets previous ann figure

71.6%

5. Increasing working capital

Current ratio most recent ann figure

2.06

Current ratio previous ann figure

2.06 0

6. Improving Productivity

Asset turnover most recent ann figure

0.5

Asset turnover previous ann figure

0.5 0

7. Growing Profitability

ROA most recent ann figure (3.08)

ROA previous ann figure 0.46% 1

8. Issuing Stock Shares outstanding most recent ann

305

Shares outstanding previous ann

305 1

9. Competitive Position

Gross margin most recent ann

39.5

Gross margin previous ann 40.3 0

Total 6

12