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We are maintaining our Neutral recommendation on Mylan Inc. (MYL - Analyst Report) with a target price of $26.00. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

Mylan performed well in the second quarter of 2012, beating the Zacks Consensus Estimate both in terms of revenue and earnings. Mylan’s second quarter 2012 earnings (excluding special items) of $0.60 per share beat the Zacks Consensus Estimate by 5 cents. Second quarter earnings increased 15% from the year-ago quarter. Higher revenues and gross margin expansion led to a rise in second quarter 2012 earnings. Revenues climbed 7% to $1.69 billion, beating the Zacks Consensus Estimate of $1.66 billion.

Mylan is one of the leading players in the global generics market. Its generics business has been consistently performing well. Mylan’s generic unit has seen quite a few launches over the past few months. Important approvals/launches include its generic versions of Sanofi’s (SNY - Analyst Report) Avapro and Avalide, Novartis’ (NVS - Analyst Report) Diovan HCT, Takeda’s (TKPYY) Actos and Actoplus Met, Teva Pharmaceuticals’ (TEVA - Analyst Report) Provigil and Merck’s (MRK - Analyst Report) Singulair among others.

As of September 28, 2012, Mylan had 168 abbreviated new drug applications (ANDAs)  pending approval by the US Food and Drug Administration (FDA), targeting $79 billion in branded sales annually. Mylan believes that about 33 of these pending ANDAs are first-to-file opportunities, representing approximately $20.7 billion in branded sales. The revenue figures are as per IMS Health for the 12 months ending June 30, 2012. Mylan is on-track for the launch of more than 650 new products in 2012.

We are also pleased by Mylan’s focus on emerging markets. Over the long term, the biggest opportunities for growth in the generics industry would be expansion in emerging markets.

However, we are concerned about Mylan’s below-par performance in the Europe, the Middle East and Africa (EMEA) region. We note that pricing pressure and currency fluctuations in several European markets have been impacting the performance of the EMEA segment over the last few quarters. Additionally, with most large branded drugs due to lose patent exclusivity within 2017-2018, we have little visibility on the growth prospects for generic companies like Mylan beyond that time frame.

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