Options Trade – Mylan Inc (NASDAQ:MYL) Calls 
Tuesday, September 09, 2014

**OPTIONS TRADE: Buy the MYL Jan 2015 50.000 call (MYL150117C00050000) at or under $2.40, good for the day. Place a protective stop limit at $0.95 and a pre-determined sell at $4.00.

by Ian Harvey

September 09, 2014

Introduction

Mylan Inc (NASDAQ: MYL), a fully integrated global pharmaceutical company that develops, licenses, manufactures, markets and distributes generic, branded generic and specialty pharmaceuticals, has begun to surge after a district court ruled that the company is free to immediately distribute its generic Precedex to customers.

Also, there is unsubstantiated chatter that activist investor Carl Icahn is considering a stake in the firm. The stock's 30-day at-the-money implied volatility has skyrocketed 22% to 31.5%, reflecting a surging demand for options. Meanwhile, call volume is running at 12 times the intraday norm.

Earnings

Mylan last released its earnings data on Thursday, August 7th. The company reported $0.69 EPS for the quarter, missing the Thomson Reuters consensus estimate of $0.73 by $0.04. The company had revenue of $1.84 billion for the quarter, compared to the consensus estimate of $1.88 billion.

During the same quarter in the prior year, the company posted $0.68 earnings per share. The company’s quarterly revenue was up 7.9% on a year-over-year basis. On average, analysts predict that Mylan will post $3.32 earnings per share for the current fiscal year.

Acquisitions Profitable

Mylan won't be calling the U.S. home for much longer after its groundbreaking deal to snag part of Abbott's generic drug colossus -- and with it, the ability to incorporate in the Netherlands. The company anticipates that re-domiciling across the Atlantic will drop its tax rate to the teens in a few years. That's a major savings coup for the company and its investors. While political questions have raged over tax inversions like this one, Mylan's savings offer serious long-term benefits. Even more interestingly, Mylan projects $200 million of pre-tax savings from operational efficiencies by the end of the third year post-closing.

That's in addition to Abbott's portfolio of nearly $2 billion in annual generic drug revenue in Europe and other global markets. Mylan is already a major player on the continent, which provided 5% sales growth at a constant currency in the second quarter. Mylan CEO Heather Bresch has played up using Abbott's existing infrastructure to augment Mylan's business, particularly in Europe.

The European economy's downturn has had an unintended benefit to generic leaders like Mylan: With branded pharmaceutical prices high, cash-strapped healthcare systems have increasingly turned to generics. In 2012, GBI Research projected that the European generic drug market could grow by more than 47% between 2012 and 2017, exceeding $38 billion in annual value.

There's a big opportunity facing Mylan in the wake of its tax inversion on the continent -- but the most tempting prize might be in the emerging markets that have recently dominated growth story lines in generic drugs.

Growth Opportunities

Even with the Abbott unit in hand, Mylan's leadership is looking for additional growth opportunities. The drugmaker for years has been a strong player in India, one of the top generic drug markets to watch as the country's middle class swells, and the potential to grow in other emerging markets could spell great things for the stock heading forward.

The company's Rest of World segment, which totals sales outside of North America and Europe, has performed strongly, with third-party net sales jumping 11% year over year in the second quarter at a constant currency. Chalk up the company's strength in India once again: In its second-quarter 10-Q filing, Mylan cited a jump in sales of anti-retrovirals in India as contributing strongly to its international success.

Rivals also have keyed in on the power of emerging markets for generic drugs: Abbott made sure to hang on to its generic sales in developing economies in its deal with Mylan. If Mylan can continue its success in the country as the nation's middle class and urban populations continue to increase, investors will have a long-term geographic growth driver even without another major acquisition.

Conclusion

The second quarter provided a downbeat display for the company's U.S. division, but Mylan's acceptance by the U.S. Food and Drug Administration or FDA, on Monday, to generic Precedex, has boosted stock prices. Also, the upcoming launches of generic versions of Copaxone and Celebrex should help put its domestic sales back on track. Meanwhile, its move across the Atlantic, along with the addition of Abbott's sizable package of generic drug assets, will give Mylan some much-needed tax savings and global punch, particularly as emerging markets develop for growth-hungry generic drug leaders.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the MYL Jan 2015 50.000 call (MYL150117C00050000) at or under $2.40, good for the day. Place a protective stop limit at $0.95 and a pre-determined sell at $4.00.



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