You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
This is a great era to be making generic drugs. With Wal-Mart selling them for $4 and insurance formularies increasingly favoring generics, this segment of the pharmaceutical world is on the upswing at a time when big, research-based drug companies are having trouble developing new blockbusters.
About 67% of the U.S.'s prescription volume is now generics, according to IMS Health. This puts generic-drug giants, such as Mylan Laboratories (symbol MYL), in an enviable position.
Mylan is doing its best to take advantage of this favorable environment. It has always had a formidable business in the U.S., run from Canonsburg, Pa. But it recently bought the generic-drug business of Germany's Merck KgaA (not to be confused with Merck in the U.S.), making Mylan a player in Europe and the third-biggest generic-drug company worldwide. An agreement with Famy Care of India to manufacture a slew of generic oral contraceptives and the purchase of Matrix, an Indian generics maker, gives Mylan access to lower labor costs in that country.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But Mylan's growth spurt came at a price. Nearly debt-free as recently as 2006, the company now owes almost $5 billion -- this at a time when credit markets around the world are cranky, to say the least. "That's one of the risks of the stock," notes analyst Martha Freitag of Argus Research. "This is a riskier investment idea than a company that has a conservative balance sheet." Most of Mylan's financing is in place, however.
Freitag upgraded the stock from "hold" to "buy" on September 30 on the strength of Mylan's product launches and its slim valuation -- the stock closed at $10.27 on October 3, down more than 60% from a year ago.
The debt load forced Mylan to suspend its dividend and dilute shareholder value by issuing an additional $3 billion in equity financing last year.
Mylan had hoped to sell Dey, its specialty-pharmaceutical division. But the business didn't fetch the price that Mylan was seeking, so Dey is off the sale block. The firm planned to use the proceeds from that sale to pay down debt. "The Dey transaction would have made me much more comfortable with the debt level," says Morningstar analyst Brian Laegeler, who thinks that Mylan should sell Dey for whatever price it can in order to make headway on the debt.
Yet Laegeler thinks the acquisitions ultimately put Mylan on the right path. "What people are missing is the large amount of cost saving that is going to come through in the next three to five years," he says. "And that's going to help them pay off the debt."
Mylan can increase sales and ultimately earnings through various channels. The firm recently launched several new products, including Johnson & Johnson's Alzheimer's and antipsychotic medications, Razadyne and Risperdal, respectively.
In 2011, a number of blockbuster drugs held by the big pharmaceutical companies come off patent, including Pfizer's Lipitor, a cholesterol-lowering drug, and Plavix, a medication for blood clots. Generic biologics, which are still five years away from market debut, would give Mylan yet another avenue. And both presidential candidates vow to make generic drugs a big piece of their health-care reform plans as a way to contain costs.
And then there's that attractive valuation. On average, analysts expect the company to earn 99 cents a share in 2009 -- double the anticipated 2008 earnings of 50 cents. That puts its price-earnings ratio for this year's profits at a reasonable 20 and for next year's at a very tempting 11, which is one of the lowest among the general drug clan. "At this valuation," says Argus's Freitag, "the risks are fairly well recognized."
-
How to Turn Your 401(k) Into A Real Estate EmpireTapping your 401(k) to purchase investment properties is risky, but it could deliver valuable rental income in your golden years.
-
My First $1 Million: Retired Nuclear Plant Supervisor, 68Ever wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
How to Position Investments to Minimize Taxes for Your HeirsTo minimize your heirs' tax burden, focus on aligning your investment account types and assets with your estate plan, and pay attention to the impact of RMDs.
-
If You'd Put $1,000 Into AMD Stock 20 Years Ago, Here's What You'd Have TodayAdvanced Micro Devices stock is soaring thanks to AI, but as a buy-and-hold bet, it's been a market laggard.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
