Mylan’s Acquisition of MatrixIn January 2007, Mylan Inc. (Mylan), one of the largest US generic drug makers, acquired a 71.5 percent stake in Matrix Laboratories Ltd. (Matrix), India, a leading Active Pharmaceutical Ingredients (API) supplier globally, fo r a cash and stock deal of US$736 million. The Mylan-Matrix deal was the largest acquisition in the Indian pharmaceutical industry and was viewed by analysts as a step toward backward integration for Mylan. The deal not only gave Mylan access to a low cost manufacturing platform, but also immediate presence in the emerging markets of Asia and Africa as well as the lucrative generic drugs markets in Europe. Matrix, on the other hand, gained the much-needed scale that generic companies required to survive in a very competitive market place. It was very important for Indian pharmaceutical companies considering that these companies did not have research molecules of their own. Analysts felt that with the global generic drugs industry un dergoing a consolidation phase, large pharmaceutical companies were eyeing Indian pharmaceutical companies as potential targets of M&A deals. This was because, with considerable pricing pressures in the US, these companies were on the lookout for low-cost suppliers. In addition to the low-cost manufacturing platform, the attractiveness of the Indian companies stemmed from the fact that they had large and varied product portfolios and world-class manufacturing facilities. Indian pharmaceutical companies also had a number of Drug Master Files (DMFs) and Abbreviated New Drug Application (ANDA) filings in the US, the world's largest market for pharmaceuticals. Moreover, some of these companies had developed a significant presence in the European and African markets through the i norganic route.
In January 2007, Mylan Inc. (Mylan), one of the largest US generic drug makers,
acquired a 71.5 percent stake in Matrix Laboratories Ltd. (Matrix), India, a leading Active Pharmaceutical Ingredients (API) supplier globally, for a cash and stock dealof US$736 million. The Mylan-Matrix deal was the largest acquisition in the Indian pharmaceutical industry and was viewed by analysts as a step toward backward
integration for Mylan. The deal not only gave Mylan access to a low costmanufacturing platform, but also immediate presence in the emerging markets of Asiaand Africa as well as the lucrative generic drugs markets in Europe.
Matrix, on the other hand, gained the much-needed scale that generic companiesrequired to survive in a very competitive market place. It was very important for Indian pharmaceutical companies considering that these companies did not haveresearch molecules of their own.
Analysts felt that with the global generic drugs industry undergoing a consolidation phase, large pharmaceutical companies were eyeing Indian pharmaceuticalcompanies as potential targets of M&A deals. This was because, with considerable pricing pressures in the US, these companies were on the lookout for low-cost
suppliers.
In addition to the low-cost manufacturing platform, the attractiveness of the Indiancompanies stemmed from the fact that they had large and varied product portfoliosand world-class manufacturing facilities. Indian pharmaceutical companies also hada number of Drug Master Files (DMFs) and Abbreviated New Drug Application
(ANDA) filings in the US, the world's largest market for pharmaceuticals. Moreover, some of these companies had developed a significant presence in the European and African markets through the inorganic route.
“This is an extremely complementary transaction that accomplishes a number of
Mylan’s key objectives. Mylan is executing on its commitment to establish a global
platform and expand its dosage forms and therapeutic categories. Additionally, this
acquisition deepens Mylan’s vertical integration and enhances its supply chain
capabilities. The transaction will allow Mylan and Matrix to strengthen and expandtheir core businesses and competencies, while creating significant opportunities for
global expansion and growth.”1
- Robert J Coury, Vice Chairman and CEO, Mylan Inc. in 2006.
“A player has to decide how he can stay in the field for as long as possible. Matrix, as
a significant API supplier, needed a bigger playing field. Partnering with Mylan gives
us that.”2,3
- Nimagadda Prasad, Executive Chairman, Matrix Laboratories Ltd. in 2006.
“Clearly, we’re seeing a trend in the industry toward acquisitions and consolidation...
This is a continuing trend to move more sourcing and manufacturing overseas and to
own it as opposed to just contracting it.”4
- Martha Freitag, an industry analyst at Argus Research Corp.5, in 2006.
Benefits beyond Global Expansion
Mylan Inc. (Mylan), one of the largest US generic drug6 makers, acquired a 71.5
percent stake in Matrix Laboratories Ltd. (Matrix), India, a leading API supplier,globally in January 2007 for a cash and stock deal of US$736 million. The Mylan-Matrix deal was the largest acquisition in the Indian pharmaceutical industry and wasviewed by analysts as a step toward backward integration for Mylan. 7 On completion
of the deal, Robert J Coury (Coury), Vice Chairman and CEO of Mylan, said,
“Today‟s announcement marks the successful closing of the transformational Matrixtransaction, and it also marks the beginning of a new era at Mylan where ourorganization is continuing to expand beyond our well-established position as a leadingdomestic generic pharmaceutical company toward our objective of establishing Mylanas a world leader in generics and specialty pharmaceuticals.”
8
1 “Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories,”www.matrixlabsindia.com, August 28, 2006.
2 API (acronym for Active Pharmaceutical Ingredients), also known as bulk drugs, are active
chemicals used in the manufacturing of drugs.3 Gina S Krishnan, “Matrix Unloaded,” www.businessworldindia.com, September 11, 2006. 4 “Mylan Laboratories Mylan to Have Majority of India‟s Matrix,” www.advfn.com, August
29, 2006.5 Argus Research Corp. is an independent research firm. 6 Generic drugs (or Generics) are either copies or the basic form of a proprietary drug (or
“brand-named”) drugs produced by large multinationals. For example, Lipitor is the brandnames for the drug Atorvastatin that was patented by Pfizer Inc. Any other drug with thesame composition manufactured and marketed by other companies is called generics.
7 Surojit Chatterjee, “Mylan Buys Majority Stake in India‟s Matrix Lab for $ 736 Million,”www.in.ibtimes.com, August 30, 2006.
8 “Mylan Laboratories Inc. Completes Matrix Laboratories Limited Transaction,”www.devicespace.com, January 9, 2007.
According to analysts, the deal was a winning proposition for both the parties to thetransaction. Where Mylan was concerned, Matrix‟s takeover helped it to enter theglobal generic markets beyond the US market. In particular, this acquisition helped
Mylan to enter the emerging pharmaceutical markets of India, China, and SouthAfrica, given Matrix‟s presence in these regions. Second, the deal would also aidMylan enter the high-margin European markets through Matrix‟s subsidiaryDocpharma NV9 (Docpharma), which was already operating in the European markets.In addition to this, Matrix would also act as a low-cost product sourcing platform forMylan given Matrix‟s strong pipeline of APIs. Jim Miller , president of PharmSourceInformation Services, Inc.10, noted, “What is most striking about the deal is thatalthough Mylan is the buyer, Matrix is clearly the more sophisticated global player.Matrix has built a sophisticated supply chain that sources early-stage intermediates inChina, converts them to APIs in FDA-approved plants in India, formulates the APIsinto finished dosage forms, and sells them in Asian and European markets. Mylan, bycontrast, manufactures only drug products and operates largely in the United States.Matrix‟s global capabilities are likely to have much greater value to Mylan in the
generics and branded generics markets than they are in contract manufacturing.”11,12
The tie-up with Mylan would benefit Matrix in terms of providing it with a bigger playing field. Moreover, it would be able to leverage on Mylan‟s existingmanufacturing and sales network in the US to penetrate deeper into the US market and
benefit from economies of scale. Besides, given Mylan‟s financial resources, Matrix‟ssubsidiary Docpharma could consolidate its position in the European market and inthe medium term use Mylan‟s knowledge to enter the US generics market.Commenting on the deal, Nimagadda Prasad (Prasad), the Executive Chairman ofMatrix, said, “Mylan, a proven industry leader, is an ideal partner for Matrix. Ourstrategic vision remains unchanged and we believe this transaction creates greatergrowth opportunities for Matrix and its employees and also will allow us to accelerateour existing expansion plans in India and a broad.”
13
Analysts felt that with the global generic drugs industry undergoing a consolidation phase, large pharmaceutical companies such as Teva Pharmaceutical Industries Ltd.
14
(Teva), Sandoz15
, Barr Pharmaceuticals, Inc.16
(Barr), the Actavis Group17
(Actavis),
9 Docpharma NV was a Belgium-based generic drugs company that was acquired by Matrixin 2005.
10 PharmSource Information Services, Inc. is a provider of information services to the pharmaceutical and biopharmaceutical companies on contract drug development andmanufacture.
11 US Food and Drug Administration (FDA) is an agency of the US Department of Health andHuman Services and is responsible for the safety regulation of most types of foods, dietarysupplements, drugs, vaccines, biological medical products, blood products, medical devices,
radiation-emitting devices, veterinary products, and cosmetics.12 Jim Miller, “Will Delivery Technologies Deliver Profits to CMOs?” www.pharmtech.com,
October 2, 2006.13 “Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories,”
www.prnewswire.co.uk, August 28, 2006.14 Teva Pharmaceutical Industries Ltd., headquartered in Petah Tikva, Israel, is the leading
generic drugs company. In 2006, it had total sales of US$8.4 billion.15 Sandoz, headquartered at Holzkirchen, Germany, is the generics subsidiary of Swiss
multinational pharmaceutical company Novartis AG. In 2006, it had total sales of US$5.9 billion.
16 Barr Pharmaceuticals, Inc., headquartered in Montvale, New Jersey, USA, is a leadinggeneric drugs company. In December 2006, it acquired a leading Croatian generic drugsmajor Pliva d.d. to become the world‟s third largest generic drugs company with combined
(Watson), etc., were eyeing Indian pharmaceuticalcompanies as potential targets of M&A deals. This was because, with considerable
pricing pressures in the US, these companies were on the lookout for low-cost
suppliers. In addition to the low-cost manufacturing platform, the attractiveness of theIndian companies stemmed from the fact that they had large and varied product
portfolios and FDA-approved manufacturing facilities. Indian pharmaceuticalcompanies also had a number of DMFs19 and ANDA20 filings in the US, the world‟slargest market for pharmaceuticals. Moreover, some of these companies haddeveloped a significant presence in the European and African markets through theinorganic route. In this context, analysts felt the acquisition of Matrix would benefitMylan. Datamonitor Plc‟s21 pharmaceutical markets analyst, Joshua Owide, noted,“As the generics industry becomes increasingly competitive, Mylan has found a dealthat will help it to not only target emerging markets but also establish it as a
prominent force in the global market. On the whole, the deal represents an excellentopportunity for Mylan to strengthen its core business activities. As a generic-focused
pharmaceutical company, manufacturing level competencies, particularly that
pertaining to drug composition, are fundamental to its operation. Subsequently, it islikely that the synergies created by this deal will optimize Mylan‟s market share andmargins.”
22
However, not everyone was optimistic about the deal. Some analysts considered the deal
to be too expensive for Mylan given the fact that it valued Matrix at 22x earnings
multiple v/s 18x, the average multiple for the Indian pharmaceutical industry. Others
kept their fingers crossed considering that this was Mylan‟s first foray outside the US,
and as such, the company might face a problem in transforming itself into a global
organization. Mylan defended the deal saying Matrix‟s acquisition was strategic and was
a calculated risk essential to provide Mylan a global reach.
Background Note
Mylan
Mylan was the second-largest US generic drug maker as of 2006.23
The company washeadquartered in West Virginia, USA, and was involved in developing, licensing,manufacturing, marketing, and distributing many generic and proprietary drugs. Thecompany primarily focused on solid oral dosage generic drugs. These generic drugs
sales of approximately US$ 2.4 billion. (Source: Victoria Harrison, “Barr Acquires 92%Share in Pliva,” www.pharmaceutical-business-review.com, December 23, 2006.)
17 Actavis Group, Reykjavík, Iceland, is a leading generic drugs company.18 Watson Pharmaceuticals, Inc., headquartered in Corona, California, USA, is a leading
generic drugs company.19 DMFs (acronym for Drug Master File) contain information on the processes and facilitiesused in drug manufacture and storage and are submitted to the US Food and DrugAdministration (FDA) for examination.
20 An ANDA (acronym for Abbreviated New Drug Application) contains data which whensubmitted to FDA‟s Center for Drug Evaluation and Research, Office of Generic Drugs, provides for the review and ultimate approval of a generic drug product. (Source:www.fda.gov)
21 Datamonitor Plc, headquartered in London, UK, is a leading provider of informationservices to key industries.
22 Joshua Owide, “Mylan Laboratories: Entering the Matrix,” www.pharmaceutical -business-review.com, August 30, 2006.
23 Mrinalini Datta, “Mylan Labs to Acquire India Rival,” www.iht.com, August 28, 2006
were more affordable than the branded prescription drugs that were marketed byresearch-based pharmaceutical companies. Mylan Pharmaceuticals Inc., MylanTechnologies Inc., Bertek Pharmaceuticals Inc., and UDL Laboratories Inc. were its
four principal subsidiaries.
Mylan‟s history dates back to 1961 when Milan Pharmaceuticals (Milan) was founded by Milan “Mike” Puskar (Puskar) and his friend Don Panoz in White Sulphur Springs,West Virginia, as a pharmaceutical distribution company. In 1970, Milan becameincorporated as Mylan Inc. and the company was listed in 1973. In 1980, under Puskar‟sleadership, the company achieved a milestone by introducing its own brand of Mylandrugs. This laid the platform for its future growth. The year 1984 marked the approval ofMylan‟s first proprietary drug, Maxzide, an anti-hypertensive drug. With this, Mylan
became the first generic drug maker to get a patent for its own product.24
In the next ten years i.e. by 1995, Mylan had the most dispersed line of pharmaceuticals in the US, be it generic or branded. Mylan also made some notableacquisitions during 1993 to 1999 (Refer to Exhibit I for Mylan: A Timeline) to
consolidate its market size and to emerge as a stronger pharmaceutical player. Theseincluded Bertex Inc, which was recognized for its transdermal drug delivery,Penederm Inc renowned for dermatology products, and B. Hickman Inc. that wasacknowledged for its skilled workforce. The acquisition of these three companies laidthe foundation of Bertex Pharmaceuticals Inc. By 2002, the Mylan‟s revenues hadcrossed the US$1 billion mark and in 2004 the company was included in S&P 50025.26
Exhibit I
Mylan: A Timeline
Event Remark/ Rationale
1961 Milan Pharmaceutical is
incorporated
Principal business is of distribution
of drugs.1965 Starts manufacturing vitamins First product to be manufactured
under Milan banner.
1973 Mylan becomes a public limitedcompany
Milan Pharma is incorporated asMylan Inc. and the company getslisted.
1984 It starts marketing its first proprietary drug Maxzide, anantihypertensive drug
Becomes the first generic drugmaker to get a patent for its product.
1987 Opens a new manufacturing unitat Caguas, Puerto Rico
To enhance its manufacturingcapacity in order to move toward a
bigger platform.
1989 Acquires a 50 percent stake inSomerset Pharmaceuticals Inc, aUS-based a proprietary researchand development pharmaceuticalcompany.
To acquire the rights to market anew medication for the treatment ofParkinson‟s disease called Eldepryl.
24 “Mylan History,” www.mylan.com. 25 The S&P 500 is an index containing the stocks of 500 Large-Cap corporations. It is
maintained by a leading publisher of financial research and analysis on stocks and bonds,Standard & Poor‟s.
marketing and manufacturingfacilities of wound and burn care pharmaceutical products.
1993 Acquires Bertek Inc. US-basedmanufacturer and innovator oftransdermal (patch) drug deliverysystems
Addition of Bertek gives Mylanfive worldwide and seven domestic
patents for transdermal drugdelivery technology.
1996 Acquires UDL Laboratories Inc, aUS-based supplier of unit dosemulti source pharmaceuticals
To gain its supplying capabilities ofunit dose to the institutional andlong-term care market place.
1996 Establishes BertexPharmaceuticals as its main
branded pharmaceuticalssubsidiary
To increase participation in the branded drug segment, which
offered higher profits than thegeneric sector
1998 Acquires Penederm Inc., a US- based pharmaceutical companyrecognized in the dermatologysegment, and merges it withBertek.
To acquire its technologyTopicare
27.
Adapted from “Company History”, www.mylan.com and www.fundinguniverse.com.
In mid-2004, Mylan made a bid to acquire King Pharmaceuticals28
in a deal valued at
US$4 billion to enhance its business in the brand drug segment.29 However, the deal
was aborted in February 2005, as the two companies could not arrive at an agreement.
Since then, the company was trying to bolster its business in generics. With the global
generic drugs industry already in a consolidation phase, Mylan was on the lookout for
an M&A deal that would help it remain competitive (Refer to Exhibit II for a note on
the global generic drugs industry).
As of 2007, Mylan Pharmaceuticals Inc. and UDL Laboratories Inc. looked after the
generic drugs operations of Mylan while Bertek Pharmaceuticals Inc. and Mylan
Technologies Inc. looked after the branded segment. The company‟s pharmaceutical
basket had 150 products including antibiotics, antidepressants, anti-inflammatory
drugs, beta-blockers, and laxatives that catered to various therapeutic segments. The
company also enjoyed a global presence and had a strong marketing and distribution
network stretching from North America to Europe, the Middle East and Africa
(EMEA), as well as the Asia Pacific region (APAC). For the fiscal year ended 2007,Mylan‟s total revenue has increased by 28 percent year -on-year from US$1257
million in 2006 to US$1611 million (Refer to Exhibit III for selected financials of
Mylan).
27 Topicare is a proprietary delivery technology of Penederm Inc in which it markets patentedtopically administered prescription product.
28 King Pharmaceuticals, headquartered in Bristol, Tennessee, USA, is a pharmaceuticalcompany that was founded in 1994. In 2006, its revenues were US$2 billion.
29 “Mylan Buys Matrix for $736 Million: Buys Indian Firm to Enter Asian and EuropeanMarkets,” www.levinassociates.com, 2006.
In 2006, the global market for generic drugs was estimated to be US$77 billion.30
The top four players in this industry were Teva, Sandoz, Barr, and Merck KgaA‟s
31
generic unit.32
Other notable players in this industry included Mylan, Watson, andActavis.
In addition to competing among themselves, the generic drugs companies alsocompeted with pharmaceutical companies that sold branded drugs on the price
platform. So, they also competed in the total pharmaceutical market that wasestimated to be US$607 billion in 2006 (according to IMS Health
33). Generic drugs
are generally sold under their chemical name. For instance, generic versions ofViagra may sell under the chemical name Sildenafil citrate. But in some markets,generic drugs may be sold under a brand name. For instance, Viagra is sold inIndia by various companies under names such as Manforce, Penegra, Caverta,
Androz, etc. Such products are called branded generics.
Factors such as a number of patent expirations of blockbuster drugs of research- based pharmaceutical companies between 2000 and 2006 had given a huge impetusto the generics drugs industry. In addition, changes in legislation and regulation invarious countries that favored the use of generic drugs and pressure from variousgovernment and other third party payers to adopt low-priced generic drugs tominimize healthcare costs had led to an increase in the usage of generic drugs. Forinstance, in the world‟s largest pharmaceutical market, USA, generic drugsaccounted for around 50 percent of the pharmaceutical market by volume. Thismade the US an attractive market for companies that manufactured and marketedgeneric drugs and some of the largest generic drug manufacturers had a strong
presence in this market. In Europe too, the generic drugs were getting increasedacceptance. While countries like Germany, Sweden, Denmark, the UK, and the
Netherlands were the larger markets for generic drugs, the smaller generic marketsof Spain, Italy, and Portugal were forecast to increase rapidly mainly as a result ofgovernment cost-containment pressures.
Increased acceptance of generic drugs had catapulted the leading generic drugscompanies such as Teva and Sandoz to the league of major pharmaceuticalcompanies. These companies were also becoming increasingly ambitious and wereoften engaging the research-based pharmaceutical companies in litigations bychallenging their patents in order to bring their generic drugs into the market even
before the patent of the branded drug had expired.
Analysts felt that the generic drugs market was poised for high growth rates in the
future. According to Visiongain34
, the market for generic drugs would increase to
30 “Consolidation in the Generic Pharmaceutical Industry: An Evolving Landscape,” Urch
Publishing , October 2007.31 Merck KGaA, headquartered in Darmstadt, Germany, is one of the oldest chemical and
pharmaceutical companies. Its history dates back to the 17th century. In 2006, MerckKGaA‟s generic unit had total sales of US$1.8 billion.
32 Tova Cohen and Steven Scheer, “Teva Pharma Seen Best Placed to Win Merck Generics,”www.reuters.com, May 8, 2007.
33 IMS Health is the world‟s leading provider of business intelligence and strategic consultingservices to the pharmaceutical and healthcare industries.
34 Visiongain, headquartered in London, UK, is a company that provides analysis of theworldwide telecom and pharmaceutical industries.
US$83.9 billion by 2010.35 IMS Health predicted that the generic drug market
would grow by 22 percent annually until 2010 in the five largest generic markets.36
However, the generic drugs companies also faced a number of challenges. Factors
such as pricing pressure and several legislative and regulatory hurdles put a lot of pressure on the generic drugs companies. The patent regulations in the US gave
enough scope for research-based pharmaceutical companies to create barriers for
entry through litigations. Research-based pharmaceutical companies sought to
extend the patent life of their blockbuster drugs and discourage the entry of generic
drugs manufacturers.
In such a scenario, generic drugs companies had to survive in a very competitive
market. These challenges had led to this industry entering a consolidation phase.
Many leading generic drugs companies entered into M&A deals. Between 2005
and 2007, there were as many as 18 M&A deals in this industry.37
The number of
dominant players had gone down to around six from 14 two years earlier. Some
notable deals were Teva‟s acquisition of Ivax Corporation38
in 2005, Sandoz‟s
acquisition of Hexel AG39
and Eon Labs, Inc.40
in 2005, and Barr‟s acquisition of
Pliva. These deals had put pressure on other generic drugs companies to
consolidate or risk compromising their competitiveness.
Compiled from various sources.
Exhibit III
Selected Financial Data of Mylan Inc.
(in US$ million) 2007 2006 2005 2004 2003
Total Revenues (A) 1,611.82 1,257.16 1253.37 1374.62 1269.19
Cost of Sales (B) 768.15 629.55 629.83 612.15 597.76
Acquired in processresearch anddevelopment (fromMatrix)
147.00 _ _ _ _
Selling, general andadministrative
215.54 225.38 259.48 201.61 173.07
35 “The World‟s Top Ten Generic Companies,” www.leaddiscovery.co.uk, November 2005. 36 Brian Lawler, “The Coming Generic Drug Boom,” www.fool.com, October 16, 2006. 37 “Mylan Outbids Teva and Private Equity Investors to Acquire Merck KGaA‟s Generics
Unit,” www.globalinsights.com, 2007. 38 Ivax Corporation was a US-based generics drugs major and one of the world‟s top ten
generics drugs company.39 Hexel AG (Hexel) was a Germany-based generics drugs major and one of the leading
generics drugs companies.40 Eon Labs, Inc., an affiliate of Hexel, was a US-based generic drugs company.
Matrix, a listed Indian pharmaceutical company, was an API manufacturer establishedin February 2001. It was the world‟s second-largest manufacturer of APIs in terms ofDMF filing.
41 Its core business was to manufacture APIs and solid oral dosage forms.
Matrix operated in regulated markets such as the US and the European Union and hada wide range of products catering to the anti-AIDS, cardiovascular, central nervoussystem, anti-asthmatic, anti-bacterial, anti-fungal, gastrointestinal, pain management,
and lifestyle related therapeutic segments.Tracing back the history of Matrix, its foundation lay in the dreams envisioned by its
promoters viz Prasad, C Satyanarayana, and M Ravinder.42 The trio took over an
(Herren), in June 2000. Matrix was formed as a result of the renaming of Herren in
February 2001. During that time it fended off an acquisition bid by H. Lundbeck A/S44
(Lundbeck). Lundbeck wanted to buy Matrix to own a new process that Matrix
haddeveloped to manufacture Citalopram, a drug originally developed by the Danish
company. Analysts felt that the company‟s refusal to sell out had earned it a lot of free
publicity.45
In 2002, Matrix filed the process patent for Citalopram under the Patent Co-operation
Treaty. Even before the US patent on Citalopram expired in January 2004, Matrix was
prepared to supply the drug. Initially the company was heavily dependent on the sales
41 “Form 8-K for MYLAN INC,” www.yahoo.com, November 7, 2007. 42 N Prasad was then the CEO and Managing Director of Vorin Laboratories Ltd. (Vorin), a
Hyderabad-based subsidiary of one of the leading Indian pharmaceutical companies,Ranbaxy Laboratories Ltd. C Satyanarayana was the R&D chief at Vorin. M Ravinder was asuccessful pharmaceutical trader, distributor, and an investor entrepreneur.
43 Herren Drugs and Pharmaceuticals was a Rs.450 million company then.44 H. Lundbeck A/S (Lundbeck) is a Danish international pharmaceutical company.45 Gina S Krishnan, “The Matrix Evolution,” www.businessworldindia.com, Debember 29,
of Citalopram, which accounted for 50 percent of its revenues in the fiscal year
2002.46 Over the years, Matrix strategically diversified its product portfolio. By 2006,
the company‟s API product range had increased to 169 and was spread across 17
therapeutic segments. Its API product portfolio also contained 10 anti-retrovirals47 (ARV). Along with this, Matrix had also started selling generic drugs under DMF
filing and Para IV filing48
in the US. It had a number of such Para IV filings in the
pipeline.
To expand its capacity and to penetrate the regulated markets in the US and Europe in
a big way, the company adopted the inorganic growth route. In line with this strategy,
Matrix acquired a 54.89 percent stake in May 2002 in Medicorp Technology
(Medicorp), an API manufacturer which had FDA approval. By the end of the year,
the company further consolidated its size through merger & acquisition deals with
Vorin Laboratories Ltd (Vorin), an API manufacturer. By May 2003, the process of
consolidation of Medicorp and Vorin with Matrix was completed. The merged entity
Matrix Labs was headed by Prasad as the managing director and chairman (Refer toExhibit IV for the values added by the three companies to the Matrix Labs).
Exhibit IV
Value Added by the Respective Companies to the Merged Entity (Matrix)
Continuing with its policy of sustained growth through the M&A route, Matrix under
the leadership of Prasad struck some major deals during 2004 and 2005 (Refer toExhibit V for Matrix: A Timeline). These deals helped Matrix to expand its market
from a single country to five countries by the end of fiscal year 2006. In addition to
being an international API company, it started competing as a manufacturer of
finished dosage forms (FDF) in Europe and China and also ventured into medical
devices. This also helped the company to diversify its risks considerably.
46 Matrix Laboratories Ltd., “2001-02 Annual Reports”, www.matrixlabsindia.com 47 Anti-retroviral drugs (ARV) are used in the treatment of HIV infection.48 Para IV filing provided the company with exclusive rights of 182 days to market the generic
version of a drug in US market, once the patent for the proprietary drug expired.
February 2002 Process Patent for Citalopramis filed by Matrix on February27.
To gain the preferred supplierstatus in global generic market.
May
2002
Acquires 54.89 percent stake inMedicorp
To gain a large customer base, presence in regulated marketand also access to sophisticatedtechnologies.
May
2003
Amalgamation of Medicorp
and Vorin into MatrixLaboratories Ltd.
Reduced time cycle of its
market and productdevelopment helped inincreasing its profit andsustainability in the competitive
business environment.
November2003
Decides to launch two jointventure companies, MedikonGalenicals in India and CEMPharma Life Science in Irelandwith two German companieshaving a total capital outlay of
€3.90 million.
Backward integration for thesupply of IPPs (generic APIs
business) and R&D support.
March 2004 FDA approves themanufacturing facility ofMatrix at Jeedimetla,Hyderabad.
Gains clearance for supplyingAPIs to the US market.
March 2004 Vera Laboratories Ltd, FineDrugs and Chemicals Ltd,Medikon Laboratories Ltd. andCaliber Engineering PrivateLtd. merge with MatrixLaboratories Ltd.
To enhance transparency andcorporate governance practicesand to move toward a more de-risk business model.
January 2005 Acquires Finished DosageFacility situated near Nashik .
In order to integrate forwardinto formulations
manufacturing.February 2005 Acquires a 60 percent stake in
Mchem, ChinaBackward integration for themanufacture of intermediatesand to help consolidate its
position as a major supplier ofAPIs
April
2005
Floats two 50:50 joint venturewith South Africa based AspenPharmacare Holdings Ltd.having largest FDA approvedAPI manufacturing facility.
To manufacture and marketanti-HIV drugs in South Africa.
Docpharma, a Belgium-basedgeneric drug distributor.
To gain generics marketing
expertise in the under- penetrated markets of Europesuch as Belgium and othermarkets of Southern Europe.
September2005
Matrix acquires a 43 percentstake in Explora LaboratoriesSA, a Switzerland-based
pharmaceutical companyengaged in R&D for high
potency API manufacture
To gain access to technology platforms and product portfolios such as corticosteroidand anti-cancer therapeuticsegment. Opportunity toleverage on technology
platform to project itself as a partner to research based pharmaceutical companies in
the area of contract researchand contract manufacturing.
December2005
Matrix acquires up to 55 percent controlling interest inConcord Biotech Ltd., a US-FDA approved biotechnologycompany in India.
Gains fermentation & Bio-catalytic technologycapabilities for manufacture ofAPIs.
Compiled from various sources
In addition to its core business of API manufacturing, the company had also identified
contract research and manufacturing as a potential growth opportunity. In this regard,
it decided to supply APIs and to make product dossiers49
of products going off patent
in the mature markets of the West. These comprehensive product dossiers, which
Martix then licensed to different companies for different markets, helped it to obtain
the contract for supplying the API in addition to the license fee. For this, Matrix
launched two joint venture companies in November 2003 – Medikon Galenicals in
India and CEM Pharma Life Science in Ireland – with two German companies.50
It
also signed a deal with Niche Generics Ltd.51 (UK) for the dossier for Perindopril, a
US$400-million per annum product.
Analysts felt that Matrix‟s global presence had resulted in it having a more de -risked
business model and also enabled it to achieve a more predictable growth in the long
run. As of 2007, the company operated in five key business segments (Refer to
Exhibit VI for the five segments and their contribution). It had 10 API intermediate
manufacturing facilities, six of which were FDA approved. These facilities are locatedin India (6), China (3), and South Africa (1). Its manufacturing facility of FDFs had
the capacity to produce 2 billion tablets and 300 million capsules on a two-shift basis
per annum. It had a total workforce of 2000 which included more than 300 R&D
49 These are regulatory submission documents and may include data from clinical trials, datafrom other studies on the drug such as bioequivalence studies, etc.
50 The German investment partners of the two joint venture companies were H Fischer & CoInternational GmbH and CES Beteiligungs GmbH respectively. Both the companies were part of the lucrative German pharmaceutical industry with a focus on generics.
51 Niche Generics ltd. is a Europe based generic drug supplier which tries to roll out thegeneric drug as soon as the patent expires.
scientists. The company had five key business segments viz. Generic APIs, ARVs,
FDF, hospital business, and contract manufacturing services (Refer to Exhibit VI to
see their Contribution to Matrix‟s Sales). For the fiscal year ended 2007, Martix‟s
total sales had increased by 42 percent year-on-year from Rs.11.59 billion in 2006 toRs.16.48 billion (Refer to Exhibit VII for the key financials of Matrix).
Exhibit VI
Contribution of Matrix’s Business Segments
Particulars2006-07
Rs.(Mn)
% to
total
sales
2005-06
Rs.(Mn)
% to
total
sales
Year-on-
year
Growth
%
Generic APIs 5,505 33 3,859 33 43
Anti-retro Virals (ARVs) 3,390 21 2,797 24 21
Finished Dosage Forms 4,295 26 2,484 22 73
Hospital business 2,209 13 1,654 14 34
Contract ManufacturingServices
1,081 7 792 7 36
Total Sales 16480 100 11586 100 42
Source: Matr ix Laboratories Ltd., “Annual Report: 2006 -2007”,
www.matrixlabsindia.com.
Exhibit VII
Matrix Laboratories Ltd. Financial for Fiscal 2006- 07
Particulars ( Rs. Millions) 2007 2006
Total sales 16,480.27 11586
Total assets 27,989.42 30788.66
Total liabilities 17,399.26 30788.66
Profit before tax 1,021.42 2381.72
Profit after tax before share of Associate 756.53 2005.63
In 2006, the total market for pharmaceuticals in India was estimated to be US$7.3 billion. The market is dominated by companies manufacturing and marketing branded generic drugs. As of 2006, Indian pharmaceutical companies also produced more than 22 percent of the world‟s generic drugs. The significant presence of Indian pharmaceutical companies in the generic drugs market had beenattributed, in part, to the loose patent regime prevalent in India before 2005.
Between 1970 and January 1, 2005, India recognized only process patents. This patent environment was not suitable for research-based pharmaceutical companiesas their products could be reverse engineered by Indian pharmaceutical companiesand sold in India. Due to this, many Indian companies specialized in reverse-engineering, which enabled them to develop generic drugs at a very low cost. Thecompetition among the various Indian companies also brought the price down
further. This prompted many research-based pharmaceutical companies to eithermarket their drugs at a moderate premium price or simply ignore the Indianmarket.
After becoming a member of the World Trade Organization (WTO), India had tocomply with TRIPS
53 (trade-related aspects of intellectual property rights). TRIPS
ensures that profits from any new product go exclusively to the innovator (patentholder) for the full duration of the patent. TRIPS came into force on January 11995, but some developing and transitional economies were given time to complywith the agreement. India was given time till January 1, 2005, to enforce a new
patent law that recognized product patents.
However, certain flexibilities have been introduced in TRIPS so that a patient‟saccess to life saving drugs is not denied. A „waiver‟ was issued in the WTO Doha
ministerial conference in 2001, stating that intellectual property should not take precedence over public health. Moreover, countries like India that had newlyintroduced TRIPS legislations were allowed to copy any drug that was patented
before 1995, i.e. before the introduction of TRIPS. Those companies that seek tocopy drugs patented after 1995 can do so under a system called compulsorylicensing, if the company that owned the patent was found to have misused itsrights.
On December 27, 2004, the Indian government issued a temporary executive orderto meet the January 1, 2005 deadline. The Indian Parliament passed the new patentlaw recognizing product patents, in March 2005. However, the law did not impactthose products invented before 1995 and generic companies still had the right tocontinue manufacturing and selling those drugs.
With the change in patent law favoring research-based pharmaceutical companies,analysts expected problems for Indian pharmaceutical companies, as most of themdid not have the R&D capability to discover new drugs. In such a scenario, theresearch-based pharmaceutical companies were expected to be more open tointroducing new products in the Indian market, while most Indian companieswould be dependent on marketing licenses to market these new drugs in India.Indian pharmaceutical companies were also focusing on contract
53 The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) is aninternational treaty administered by the World Trade Organization (WTO) which sets downminimum standards for most forms of intellectual property (IP) regulation within allmember countries of the World Trade Organization.
research/manufacturing. However, to attract such global contracts, these companieshave to achieve a critical mass or economies of scale to be viewed as a suitable
partner.
Therefore, in order to diversify risks, leading pharmaceutical companies in India
were looking for growing through M&A in foreign markets. The fact that the
patents for a large number of drugs in the US and Europe were due to expire in the
next few years, also added to the attractiveness of these markets to Indian
pharmaceutical companies. Since Indian pharmaceutical companies specialize in
manufacturing low cost and good quality generic drugs, they were in a position to
make the most of this opportunity. However, analysts believe that in order to be
more competitive the companies had to develop scale. Scale was very important
for companies considering that these companies did not have research molecules of
their own and relied on reverse engineering of drugs developed by research-based
pharmaceutical companies.
Compiled from various sources.
The Deal
In mid-2006, there were speculations that Mylan was in the process of acquiring a
majority stake in Matrix. Though the management at Matrix denied the reports, there
was a 10 percent rise in the company‟s share prices in anticipation of the deal.54
These
reports followed reports earlier in the year that the world‟s largest generic drugs
company Teva was interested in acquiring Matrix.
On August 27, 2006, Mylan announced its intention of acquiring Matrix in a cash and
stock deal worth US$736 million. With this, Mylan intended to establish a global
presence in emerging pharmaceutical markets such as India, which was the fourth
biggest drug market in terms of volume.55
Coury commented, “Mylan Matrix
transaction marks the beginning of a new era at Mylan where our organization is
continuing to expand beyond our well-established position as a leading domestic
generic pharmaceutical company toward our objective of establishing Mylan as a
world leader in generics and specialty pharmaceuticals.”56 As per the terms of the
transaction approved by the Mylan Board of Directors, Mylan acquired up to 71.5
percent of Matrix‟s outstanding paid-up share capital. Merrill Lynch & Co., Inc. 57 and
DSP Merrill Lynch Ltd.58
were the advisors to Mylan for completing this deal. Matrix
was advised by ABN AMRO Holding NV59
and UBS AG60
.
54 Mobis Philipose, “Matrix Unloaded?” www.dnaindia.com, June 22, 2006. 55 “Pharmaceuticals”, www.ibef.org, November 15, 2007 56 “Mylan Lab Acquires Stake in Matrix,” www.ciol.com, January 9, 2007.57 Merrill Lynch & Co. Inc. (ML), headquartered in New York, USA, is a leading wealth
management financial services, and advisory company.58 DSP Merrill Lynch Ltd. (DSPML), headquartered in Mumbai, India, is a leading financial
service provider in India. ML holds a 90 percent stake in DSPML.59 ABN AMRO Holding NV, Amsterdam, the Netharlands, is a leading European bank with a
global presence.60 UBS AG, headquartered in Basel & Zürich, Switzerland, is a leading financial services
There were two phases to the Mylan Matrix deal. In the first phase, Mylan purchased51.5 percent of the paid up share capital of Matrix in accordance with the agreementmade with certain selling shareholders. In order to do so, Mylan‟s wholly-owned
subsidiary, MP Laboratories Ltd. (Mauritius) entered into a Share PurchaseAgreement (SPA) with key shareholders of Matrix viz. Prasad, N Prasad HUF
, entities controlled by Newbridge Capital63, and Spandana Foundation64. In the second phase of the deal on November 22, 2006, Mylan made a public announcement of an open offer to acquire20 percent of Matrix‟s share capital held by the general public. This was done inaccordance with SEBI65 regulations.
On completion of the open offer on December 21, 2006, and closing of the SPA,Mylan acquired 71.5 percent of Matrix‟s total paid -up share capital. Both thesetransactions were performed at Rs.306 per share (US$6.84 per share), putting the dealat US$ 736 million, an approximate 15 percent premium to the last 30-days‟ averagestock price of Matrix. Though the price to revenue multiple in relation to the marketvalue of Matrix stock in December 2006 was 2.8x and the price-to-EBIT multiple was
12.3x, the purchase price (Rs. 306) implied that Mylan valued Matrix at above US$1 billion, with a price to revenue multiple of 3.9x and a price-to-EBIT multiple of17.2x.66 On January 8, 2007, Mylan finally closed the purchase of 71.5 percent ofMatrix‟s outstanding share capital. Though Mylan acquired the controlling stake inMatrix after completion of the transaction, the rest of its share still continued to tradeon the Indian Stock Exchanges (Refer to Exhibit IX for the shareholding pattern ofMatrix). Mylan said that Matrix would continue to operate as an independent entityafter the deal.
One of the strategic pre-conditions attached to this deal was induction of Prasad onMylan‟s Board of Directors as head of Global Strategies. Prasad was highly regardedin the industry as a wealth creator who had bought Matrix for Rs.30 million in 2000and sold it for an enterprise valuation of Rs.62.1 billion in 2006. 67 This precondition
was intended to make Mylan‟s entry into the global API landscape a successfulventure backed by Prasad‟s long experience in the global API industry. It was alsointended to keep Prasad away from launching a new pharmaceutical company as hewas reportedly keen on pursuing his entrepreneurial dreams. Prasad invested US$25million of the proceeds from the sale of his share in Matrix in Mylan.
68 “The idea
behind retaining an equity stake of five per cent in Matrix and investing $25 million inMylan and joining their management team heading the global business strategies is toensure confidence levels of the Matrix shareholders, employees, and also to the new
partner – Mylan,”69
said Prasad.
61 HUF (acronym for Hindu Undivided Family) is a legal taxable entity in the eye of law andIncome Tax Act of India.
62 Maxwell (Mauritius) is an arm of Singapore-based investment company, Temasek Holdings.It held a 13.8 percent stake in Matrix.
63 Newbridge Capital is a joint venture between Texas Pacific Group and Blum CapitalPartners. Along with its entities, it held a 26 percent stake in Matrix.
64 Spandana Foundation is a charitable trust promoted by Prasad.65 SEBI (acronym for Securities and Exchange Board of India) is the regulatory authority of
Indian securities markets.66 “Mylan Buys Matrix for $736 Million: Buys Indian Firm to Enter Asian and European
Markets,” www.levinassociates.com, 2006. 67 Gina S Krishnan, “Matrix Unloaded,” www.businessworldindia.com, September 11, 2006. 68 “Mylan Lab Acquires Stake in Matrix,” www.ciol.com, January 9, 2007. 69 CR Sukumar, “Matrix Promoter May Turn Angel Investor,” www.thehindubusinessline.com,
Mylan acquired the majority stake in Matrix primarily to establish a globaldistribution network for its generic drug portfolio. This acquisition acted as an entrywindow for Mylan to tap the huge potential of emerging pharmaceutical markets suchas India, China, and Africa, where Matrix already had a significant presence throughits various strategic alliances. Analysts felt that its presence in emerging marketswould be profitable for Mylan in the long term.
70
Matrix, in addition to having full-fledged facilities in India, had tie-ups with AspenPharmacare Holdings Ltd., South Africa, and Mchem Group, China. The deal
provided Mylan with the opportunity to expand its market for generic drugs to these
emerging markets, where the generic drug turnover was greater than that of brandeddrugs. With the mature markets of the West showing signs of saturation, theseemerging markets provided pharmaceutical companies with the next opportunity forgrowth. For instance, in 2006, the Indian pharmaceutical market grew at the rate of17.5 percent to US$7.3 billion while the pharmaceutical market in China grew by 12.3
percent to US$13.4 billion.71 This was much higher than the 5-6 percent growthexperienced by the pharmaceutical industry as a whole in the mid-2000s.
Further, the acquisition was also expected to help Mylan enter the high-margin
European market through the Matrix subsidiary, Docpharma. Docpharma was a
leading distributor of branded generics in Belgium, the Netherlands, and Luxembourg,
and was in the process of expanding its operations into France and Italy. By utilizingDocpharma‟s sales network, Mylan expected to market its products in the European
markets.
The inclusion of Matrix‟s world class 10 APIs and intermediate plants would enhance
Mylan‟s back -end supply chain capabilities and provide a low-cost raw material
sourcing platform. This was expected to eventually improve Mylan‟s cost structure
and enable it to compete more aggressively in price competitive markets such as the
US. As a result of the acquisition, Mylan would have an expanded and more flexible
manufacturing base. Some analysts felt that Matrix could well end up as one of
Mylan‟s manufacturing centers.72
However, Mylan‟s spokesman Patrick Fitzgerald
said that the company was not interested in off-shoring its manufacturing to Matrix‟s
facilities. “What we will be doing is source our APIs from Matrix and also expand ourhigh-barrier-to-entry product capabilities – Matrix is the world‟s largest supplier of
generic anti-retroviral APIs and will allow us to be a leader in HIV medications,” 73
he
said.
According to Mylan, Matrix‟s product portfolio in the solid dosage forms did not
clash with that of Mylan but rather complemented it. Matrix being the world‟s largest
supplier of generic ARV APIs, Mylan would now be able to enter into the high-
barrier-to-entry product segments, particularly in the area of ARV. Matrix‟s finished
dosage form pipeline would enable Mylan to pursue a broader portfolio of products in
a more cost-effective manner.
Matrix had strong reverse engineering and scientific capabilities and access to highly
talented and skilled manpower, which would help Mylan increase its number ofANDA submissions. Coury said, “Matrix brings to Mylan a highly experienced
management team, whose robust international experience and strong track record
managing integration will complement our U.S. team.”74
Benefits for Matrix
The Mylan Matrix merger was expected to benefit Matrix as well. Experts felt that the
merger would help in accelerating Matrix‟s expansion plans in India and abroad. As a
part of Mylan, Matrix would benefit from Mylan‟s predominant presence in the US
and their combined expanded production capabilities and manufacturing capacity,
which would result in economies of scale. The additional financial resources from
Mylan would help Matrix in enhancing its manufacturing capabilities and product
development activities and also to expand Docpharma‟s portfolio and European presence, thereby helping Matrix strengthen its position in the European market.
Commenting on the deal, Prasad said “This transaction offers significant benefits for
our customers. Together, our companies will be able to compete more effectively,
while delivering cost savings to our customers. The additional financial resources
Mylan brings us also will allow us to further enhance Matrix‟s capabilities in
72 Atul Sathe, “How Mylan Can Turn around Matrix,” www.rediff.com, September 18, 2006. 73 “Mylan in India‟s Biggest Pharmaceutical Takeover as it Enters the Matrix,” www.in-
pharmatechnologist.com, August 30, 2006.74 “Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories”,
manufacturing and product development and expand Docpharma‟s portfolio and
presence across Europe. We look forward to drawing on Mylan‟s strengths to advance
our anti-viral initiatives, as we believe bringing these products to patients at lower
costs is critical.”75
Viswanathan Vasudevan, a fund manager at Aquarius Investment Advisors 76, said,“There will definitely be a broadening of the market of Matrix and it will give moredepth, reach, and coverage for the company,”
77 For instance, the Mylan-Matrix
combine, with its global presence, would further augment Matrix‟s ARV sales.Matrix‟s ARV business comprised 25 percent of its total revenues in 2005 and itcontinued to be its focus area. It was one of the few players globally that offeredcomplete integration for ARV drugs right from the intermediate stage to the finisheddosage stage. The combined entity was well placed to partner with international HIV
programs to bring low-cost anti-AIDs drugs to HIV patients across the globe.
Analysts felt that the merger with Mylan would provide Matrix with the much-neededscale that generic companies required to survive in a very competitive market place. Itwas very important for Indian pharmaceutical companies considering that thesecompanies did not have research molecules of their own. Some analysts said that since2004, Matrix had been facing considerable pricing pressures in the US and Europeanmarkets.
78
Both the companies said that they did not expect any problems in cultural integration post-merger. Prasad said that the culture of Matrix would remain intact as the cultureat Mylan was a “mirror image of Matrix,”79 Coury too felt that Matrix was a goodculture fit for Mylan. We are very excited about the transaction and expect, based onour time together thus far, a smooth and effective integration. We have found thatMatrix and Docpharma have cultures and values that are extremely consistent to ourown at Mylan,”80 he said.
The Other View
Though overall, the deal was expected to be a win-win proposition for both the
parties, analysts were cautious about the long-term sustainability of Matrix‟s existing
supply chain arrangements with other US generic players who would now become its
direct competitors. Further, as Matrix had already been the second largest API
supplier to Mylan since 2003, transfer pricing of drugs between Mylan and Matrix
was also expected to be an issue of concern which would affect the potential top-line
synergies expected from this deal in the near term. Moreover, as per Mylan‟s press
release in December 2006, accretion to earnings would be mild in the short term.
Significant top-line synergies resulting from the combined operations would only flow
in the long term (by 2009-10) when Mylan and Matrix‟s subsidiary Docpharma, were
able to list their respective drugs in the Europe and the US market respectively.
75 “Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories”,www.matrixlabsindia.com, August 28, 2006
76 Aquarius Investment Advisors is a Singapore-based company which provides financialadvisory services.
77 Mrinalina Datta, “Mylan Labs to Acquire India Rival,” www.iht.com, August 28, 2006. 78 Atul Sathe, “How Mylan Can Turn around Matrix,” www.rediff.com, September 18, 2006. 79 J.Padmapr iya, “Matrix Founder Prasad Set to Get into the Groove at Mylan ,”
www.economictimes.indiatimes.com, September 9, 2006.80 “Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories,”
Many analysts also felt that Mylan had over-paid for the acquisition of Matrix.According to them, by valuing Matrix at US$ 1 billion plus, Mylan had paid 22xMatrix‟s expected earnings. This was high, considering the Indian drug sector‟s
average multiple of 18x. However, Mylan defended the deal, explaining that theacquisition was a calculated risk essential to enable it to expand its presence beyondUS generic markets on a global scale and to keep up with its peers. Some analysts too
justified the price paid by Mylan as they viewed India as an attractive market for pharmaceutical products -- a market that the pharmaceutical companies just couldn‟tafford to ignore keeping the future in mind.81
Some analysts felt that it wouldn‟t be easy for a company like Mylan, which had onlyoperated in the US, to suddenly transform itself into a global generic drugscompany.82
Post Deal Developments
After the deal was completed, Coury and Prasad were appointed as the Non-executiveChairman and Non-executive Vice Chairman of the board of Matrix respectively.Mylan also established its Asian headquarters in Singapore for Prasad and his team.83 It was decided that Rajiv Malik (Malik) would continue to head Matrix, while StijnVan Rompay, the co-founder of Docpharma, would continue to manage Docpharma.
In the restructuring that followed at Mylan, Malik was appointed the Head of Global
Technical Operations at Mylan. In the new position, he was expected to look after the
global R&D, manufacturing, supply chain management, and regulatory affairs. 84 S
Srinivasan, Senior Vice President of Matrix, was promoted as COO of Matrix.
Mylan‟s Senior Vice President of Strategic Corporate Development and Chief
Integration Officer was promoted to head Mylan‟s North American operations.
Mylan‟s Vice President of Facilities was promoted as head of Global Manufacturing.
The company also announced that its Chief Scientific Officer John O‟Donnell wouldretire on April 1, 2007. “During the past several months leading up to the successful
closing of this transformational transaction we‟ve had the opportunity to carefully
evaluate all aspects of our organizations and we are realigning to allow us to realize
the full benefit, efficiencies, and growth potential of our new global platform. I am
very pleased at how quickly and efficiently we have brought these organizations
together and this reorganization will further enhance and accelerate the benefits to
Mylan and Matrix,”85 explained Coury.
Mylan also increased its fiscal 2007 adjusted earnings per share guidance to US$1.50-
US$1.55 from the earlier projection of US$1.35-US$1.55 per share.86
The company
had cited the successful acquisition of the Matrix as a reason for this increase.
81 “Mylan Buys Matrix for $736 Million: Buys Indian Firm to Enter Asian and EuropeanMarkets,” www.levinassociates.com, 2006.
82 “Mylan in India‟s Biggest Pharmaceutical Takeover as it Enters the Matrix,” www.in- pharmatechnologist.com, August 30, 2006.
83 “Mylan Lab Acquires Stake in Matrix,” www.ciol.com, January 9, 2007. 84 “UPDATE 1-Mylan Reorganizes Management after Matrix Deal,” www.today.reuters.com,
January 31, 2007.85 “Mylan Laboratories Announces Strategic Global Reorganization to Maximize Growth
Opportunities and Leverage Efficiencies Provided by New Global Platform,”www.drugnewswire.com, February 1, 2007.
86 “Mylan Laboratories Ups 2007 Outlook ,” www.businessweek.com, February 1, 2007.
Shortly after the acquisition of Matrix, Mylan further consolidated its position in the
global arena by acquiring Merck KgaA‟s generic unit for US$6.8 billion in October
2007. This acquisition catapulted Mylan to the position of the world‟s third largest
generic company behind Teva and Sandoz87, employing around 12,000 peopleglobally in more than 90 countries. As of end 2007, Mylan‟s broad product offering
included more than 570 products and the world‟s second largest portfolio of APIs and
126 US DMFs. The mood at Matrix was also upbeat. “Becoming a Mylan subsidiary
has opened up new opportunities for Matrix and the recent announcement of the
acquisition of Merck KgaA‟s generic business by Mylan provides additional
opportunities for Matrix. These developments would provide a global scale for
achieving very efficient utilization of R&D, manufacturing, and other resources of the
company. We are proud that Matrix will become part of one of the world‟s leading
global generics companies,”88
said Malik.
Outlook
The acquisition of Matrix helped Mylan to expand beyond the US market and
establish a global presence with 5100 employees in 10 countries. This deal was a
landmark one, suggesting that Indian generic drug makers with FDA approved plants,
a strong product pipeline, and a low-cost and robust manufacturing base were
attractive takeover targets for global generic makers. Some analysts also expected
Mylan‟s acquisition of Matrix to trigger more such M&A deals in the Indian
pharmaceutical industry. In this regard, Sanjiv Kaul, MD, ChrysCapital Management
Company89
, said, “The ticket size of this deal has been noticed by everyone. It will
open the eyes of both the overseas companies and Indian companies who will realize
that tremendous shareholder value can be unlocked through the divestment route…
Just as the Mylan-Matrix deal is based on strong strategic fit, foreign companies such
as Barr, Watson, and Teva will find companies in India which have excellent fits with
them.”90
In a nutshell, the Matrix deal, which was completed in January 2007,
provided Mylan with an in-house API supplier, a strong entry platform into the
lucrative European generic markets and the fast growing emerging markets such as
Indian and China, and, above all a robust manufacturing base using a low-cost work
force.
According to analysts, through the acquisition of Matrix and Merck KgaA‟s generic
unit, Mylan had not only expanded its global reach, but was also in a position to reap
benefits of economies of scale and a more diversified and balanced product portfolio.
According to Goldman Sachs Group91
equity analyst, Randall Stanicky, Mylan would
post revenue and profits of US$5.2 billion and US$362.3 million respectively,
87 Sandoz, headquartered at Holzkirchen, Germany, is the generics subsidiary of Swissmultinational pharmaceutical company Novartis AG.
88 “Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories”,Press Release, www.matrixlabsindia.com, May 23, 2007.
89 ChrysCapital Management Company is an investment firm headquartered in Mauritius withits prime focus on Indian market.
90 Javed Sayed, “Matrix Deal to Trigger M&As in Pharma Sec,”www.economictimes.indiatimes.com,August 30, 2006.
91 Goldman Sachs Group is headquartered in New York and it is a global investment banking,securities, and investment management firm that provides a wide range of servicesworldwide to a substantial and diversified client base.
compared to its revenue of US$1.3 billion and profit of US$188.7 million in 2006.92
This would also substantially de-risk the entire business from downturns in any
particular market or segment, according to analysts. The management of Mylan was
understandably pleased with their newly acquired global standing and was gearing upto further build on that. “The new Mylan now has all of the critical attributes we need
to ensure future success and deliver powerful growth. We have enhanced scale and
stability, a truly global reach, vertical and horizontal integration, and breadth and
depth in our management team,”93
said Coury.
92 Rick Stouffer, “Generics Deal a Shot in Arm for Mylan,” www.pittsburglive.com,December 9, 2007.
93 “Mylan Laboratories Inc Completes Acquisition of Generic Business of Merck KGaA,”www.biospace.com, October 2, 2007.
