Seeking Guidance from Mylan

Mylan, Inc. (MYL) is engaged in the development, manufacture, marketing, licensing and distribution of generic, branded and branded generic pharmaceutical products, as well as active pharmaceutical ingredients (APIs). With the acquisition of Merck Generics and Matrix Labs, Mylan is now the third largest generic company in the world.

While we expect the Merck Generics acquisition to contribute to long-term growth, near-term execution risks remain. Mylan recently announced certain strategic initiatives which should help drive long-term growth. But, management also stated that they expect 2008-2010 EPS to be negatively impacted by a slower-than-expected new product launch. We await more clarity on guidance and prefer to remain on the sidelines for the time-being. Mylan shares are currently trading at 25.3x our estimated 2008 EPS of $0.50.

The stock declined more than 8% following the release of December quarter results. Although results exceeded expectations, the company announced that it expects an EPS hit of $0.20 - $0.25 per year from 2008 to 2010 due to a slower-than-expected Perforomist launch. We await more visibility on guidance which will be provided in May. We believe the lack of concrete guidance and the potential negative impact on EPS triggered the recent sell-off.

In the meantime, Mylan continues to work on the successful integration of the Merck Generics business that was acquired in October 2007. This acquisition will allow Mylan to expand its footprints in non-U.S. markets like Europe, Japan and other Asia-Pacific regions. With Matrix and Merck Generics, Mylan should be able to position itself as a leader in the worldwide generics market.

The company expects the Merck Generics acquisition to drive 15% top-line growth and 30% - 35% bottom-line growth in the long term. While we expect the acquisition to drive long-term growth, near-term execution remains very important. Management announced certain strategic initiatives, on the fourth quarter call, which should aid long-term growth.

The company entered into an agreement with Forest Labs (FRX) for the sale of its rights to Bystolic for $370 million. Besides this, Mylan announced its decision to sell its specialty pharmaceutical business this move should allow the company to focus on its core specialization area, generics. Moreover, the monetization of Bystolic and the potential sale of the specialty business should help the company accelerate the repayment of its huge debts and reduce interest payments.

While we believe these are steps in the right direction, we await clarity on guidance. We believe that the shares will remain under pressure over the next few months on concerns regarding the outlook. We rate the stock a Hold with a price target of $13.50. Our target price is based on 27x our 2008 EPS estimate of $0.50.

Cameron Int'l Trading High

We reiterate our Hold recommendation and EPS estimates for Cameron International (CAM) shares ahead of the company's first quarter results. With a $4.3 billion backlog level, the company looks to further strengthen its order book position in 2008 with an expected 20% increase from the 2007 level.

Importantly, Cameron won a $650 million contract to build underwater systems for an offshore development project in Nigeria. However, we believe that the stock's premium valuation relative to the peer group already reflects all the positives concerning the company's leverage to the current oilfield cycle.

Cameron shares have been one of the best-performing in the group in the last twelve months, reflecting the company's continued strong order bookings and the favorable macro-environment. We are, however, maintaining our Hold recommendation given the stock's premium valuation relative to its peer group. We believe that all the positives related to the company's leverage to the current oilfield cycle are already reflected in current valuation. As such, we see limited upside from current levels. Our preferred name in the equipment space remains National Oilwell Varco (NOV).

Premium for Amylin Not Warranted

Sales of Byetta have disappointed over the past several quarters. Specially, the first quarter 2008 was very weak, albeit in part due to wholesaler de-stocking. However, the Amylin Pharmaceuticals, Inc. (AMLN) story is tied to the success or failure of phase III potential blockbuster, exenatide LAR. Data on LAR from the DURATION-1 was presented in October 2007. We classified the data as good, but not great. Additional data from the DURATION program is expected in 2009.

At this time the valuation on Amylin is not attractive. The stock is trading at 21x our 2012 EPS estimate well above the peer-group at 10x and that estimate assumes LAR posts sales over $1.5 billion. In the meantime, there are few catalysts and operating expenses are soaring. Amylin currently trades at 21x our 2012 EPS estimate of $1.31.

The 2012 multiple is a 100% premium to the large-cap pharma / biotechnology peer-group average of 10x 2012 EPS. The peer-group consists of several large-cap bellwethers including Eli Lilly & Co. (LLY)(8x), Merck & Co., Inc. (MRK)(7x), Genentech, Inc. (DNA)(9x), Amgen, Inc. (AMGN)(6x), Biogen Idec, Inc. (BIIB)(11x), Gilead Sciences, Inc. (GILD)(12x), Celgene Corp. (CELG)(13x), and Genzyme Corp. (GENZ)(11x).

We believe this premium by Amylin is not warranted given significant questions that surround the future growth of Byetta. As we have noted above, sales of Byetta are not yet to a level that generates profitability, and we see little chance to reach profitability until the LAR product launches in 2010. And, even with $1.6 billion in LAR sales in 2012 and a 15% tax rate Amylin's operating margin of only 10% is about half that of the peer-group. We are still at a level where we believe the name is substantially over-valued. We see far better and cheaper opportunities in biotech today.