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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 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 undergoing 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 inorganic route.
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428
10
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Docpharma NV was a Belgium-based generic drugs company that was acquired by Matrix
in 2005.
PharmSource Information Services, Inc. is a provider of information services to the
pharmaceutical and biopharmaceutical companies on contract drug development and
manufacture.
US Food and Drug Administration (FDA) is an agency of the US Department of Health and
Human Services and is responsible for the safety regulation of most types of foods, dietary
supplements, drugs, vaccines, biological medical products, blood products, medical devices,
radiation-emitting devices, veterinary products, and cosmetics.
Jim Miller, Will Delivery Technologies Deliver Profits to CMOs? www.pharmtech.com,
October 2, 2006.
Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories,
www.prnewswire.co.uk, August 28, 2006.
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.
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.
Barr Pharmaceuticals, Inc., headquartered in Montvale, New Jersey, USA, is a leading
generic drugs company. In December 2006, it acquired a leading Croatian generic drugs
major Pliva d.d. to become the worlds third largest generic drugs company with combined
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International Business
Watson Pharmaceuticals, Inc.18 (Watson), etc., 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 FDA-approved manufacturing facilities. Indian pharmaceutical
companies also had a number of DMFs19 and ANDA20 filings in the US, the worlds
largest market for pharmaceuticals. Moreover, some of these companies had
developed a significant presence in the European and African markets through the
inorganic route. In this context, analysts felt the acquisition of Matrix would benefit
Mylan. Datamonitor Plcs21 pharmaceutical markets analyst, Joshua Owide, noted,
As the generics industry becomes increasingly competitive, Mylan has found a deal
that 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 excellent
opportunity 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 is
likely that the synergies created by this deal will optimize Mylans market share and
margins.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 Mylans 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 Matrixs 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 was
headquartered in West Virginia, USA, and was involved in developing, licensing,
manufacturing, marketing, and distributing many generic and proprietary drugs. The
company primarily focused on solid oral dosage generic drugs. These generic drugs
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19
20
21
22
23
sales of approximately US$ 2.4 billion. (Source: Victoria Harrison, Barr Acquires 92%
Share in Pliva, www.pharmaceutical-business-review.com, December 23, 2006.)
Actavis Group, Reykjavk, Iceland, is a leading generic drugs company.
Watson Pharmaceuticals, Inc., headquartered in Corona, California, USA, is a leading
generic drugs company.
DMFs (acronym for Drug Master File) contain information on the processes and facilities
used in drug manufacture and storage and are submitted to the US Food and Drug
Administration (FDA) for examination.
An ANDA (acronym for Abbreviated New Drug Application) contains data which when
submitted to FDAs 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)
Datamonitor Plc, headquartered in London, UK, is a leading provider of information
services to key industries.
Joshua Owide, Mylan Laboratories: Entering the Matrix, www.pharmaceutical-businessreview.com, August 30, 2006.
Mrinalini Datta, Mylan Labs to Acquire India Rival, www.iht.com, August 28, 2006
430
Exhibit I
Mylan: A Timeline
Event
24
25
26
Remark/ Rationale
1961
Milan Pharmaceutical is
incorporated
1965
1973
1984
1987
1989
431
International Business
Event
Remark/ Rationale
1991
1993
1996
1996
Establishes Bertex
Pharmaceuticals as its main
branded pharmaceuticals
subsidiary
1998
To
acquire
Topicare27.
its
technology
27
28
29
432
Exhibit II
A Note on the Global Generic Drug Industry
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 KgaAs 31
generic unit.32 Other notable players in this industry included Mylan, Watson, and
Actavis.
In addition to competing among themselves, the generic drugs companies also
competed with pharmaceutical companies that sold branded drugs on the price
platform. So, they also competed in the total pharmaceutical market that was
estimated 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 of
Viagra 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 in
India 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 researchbased pharmaceutical companies between 2000 and 2006 had given a huge impetus
to the generics drugs industry. In addition, changes in legislation and regulation in
various countries that favored the use of generic drugs and pressure from various
government and other third party payers to adopt low-priced generic drugs to
minimize healthcare costs had led to an increase in the usage of generic drugs. For
instance, in the worlds largest pharmaceutical market, USA, generic drugs
accounted for around 50 percent of the pharmaceutical market by volume. This
made the US an attractive market for companies that manufactured and marketed
generic drugs and some of the largest generic drug manufacturers had a strong
presence in this market. In Europe too, the generic drugs were getting increased
acceptance. While countries like Germany, Sweden, Denmark, the UK, and the
Netherlands were the larger markets for generic drugs, the smaller generic markets
of Spain, Italy, and Portugal were forecast to increase rapidly mainly as a result of
government cost-containment pressures.
Increased acceptance of generic drugs had catapulted the leading generic drugs
companies such as Teva and Sandoz to the league of major pharmaceutical
companies. These companies were also becoming increasingly ambitious and were
often engaging the research-based pharmaceutical companies in litigations by
challenging 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
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31
32
33
34
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International Business
US$83.9 billion by 2010.35 IMS Health predicted that the generic drug market
would grow by 22 percent annually until 2010 in the five largest generic markets. 36
However, the generic drugs companies also faced a number of challenges. Factors
such as pricing pressure and several legislative and regulatory hurdles put a lot of
pressure on the generic drugs companies. The patent regulations in the US gave
enough scope for research-based pharmaceutical companies to create barriers for
entry through litigations. Research-based pharmaceutical companies sought to
extend the patent life of their blockbuster drugs and discourage the entry of generic
drugs manufacturers.
In such a scenario, generic drugs companies had to survive in a very competitive
market. These challenges had led to this industry entering a consolidation phase.
Many leading generic drugs companies entered into M&A deals. Between 2005
and 2007, there were as many as 18 M&A deals in this industry. 37 The number of
dominant players had gone down to around six from 14 two years earlier. Some
notable deals were Tevas acquisition of Ivax Corporation 38 in 2005, Sandozs
acquisition of Hexel AG39 and Eon Labs, Inc.40 in 2005, and Barrs acquisition of
Pliva. These deals had put pressure on other generic drugs companies to
consolidate or risk compromising their competitiveness.
Compiled from various sources.
Exhibit III
Selected Financial Data of Mylan Inc.
(in US$ million)
2007
2006
2005
2004
2003
1,611.82
1,257.16
1253.37
1374.62
1269.19
768.15
629.55
629.83
612.15
597.76
843.67
627.62
623.54
762.47
671.44
Research and
Development
103.70
102.43
87.88
100.81
86.75
Acquired in process
research and
development (from
Matrix)
147.00
215.54
225.38
259.48
201.61
173.07
Operating Expenses:
35
36
37
38
39
40
434
50.12
12.42
25.99
34.76
2.37
427.55
287.39
302.17
494.80
413.99
Interest Expense
52.28
31.29
50.23
18.50
10.08
17.81
12.53
Earnings before
income taxes and
minority interest
425.51
274.61
312.25
512.61
426.51
208.02
90.06
108.66
177.99
154.16
0.21
217.28
184.54
203.59
334.61
272.35
Earning from
operations
Minority Interest
Net Earnings
Matrix
Matrix, a listed Indian pharmaceutical company, was an API manufacturer established
in February 2001. It was the worlds second-largest manufacturer of APIs in terms of
DMF 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 had
a wide range of products catering to the anti-AIDS, cardiovascular, central nervous
system, 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
ailing Hyderabad-based pharmaceutical company, Herren Drugs & Pharmaceuticals43
(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 companys 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
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43
44
45
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International Business
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 companys 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 to
Exhibit 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)
Parameters
Matrix
Medicorp
Vorin
Products
Six: CNS
agents & antibacterial
Ten: Gastro-intestinal,
proton pump inhibitors,
anti-inflammatory &
cardio-vascular
Markets and
customers
Europe
India, Middle
East, Africa and
South Africa
Facilities
TGA and
European
norms
ISO 9000
Regulatory
compliance
----
----
46
47
48
436
Exhibit V
Matrix: A Timeline
Event
Impact/ Benefit
February 2001
February 2002
May
2002
May
2003
Amalgamation of Medicorp
and Vorin into Matrix
Laboratories Ltd.
November
2003
March 2004
March 2004
January 2005
February 2005
April
2005
437
International Business
Event
Impact/ Benefit
June
2005
September
2005
Matrix acquires up to 55
percent controlling interest in
Concord Biotech Ltd., a USFDA approved biotechnology
company in India.
December
2005
50
51
These are regulatory submission documents and may include data from clinical trials, data
from other studies on the drug such as bioequivalence studies, etc.
The German investment partners of the two joint venture companies were H Fischer & Co
International GmbH and CES Beteiligungs GmbH respectively. Both the companies were
part of the lucrative German pharmaceutical industry with a focus on generics.
Niche Generics ltd. is a Europe based generic drug supplier which tries to roll out the
generic drug as soon as the patent expires.
438
% to
total
sales
2005-06
Rs.(Mn)
% to
total
sales
Year-onyear
Growth
%
Generic APIs
5,505
33
3,859
33
43
3,390
21
2,797
24
21
4,295
26
2,484
22
73
Hospital business
2,209
13
1,654
14
34
Contract Manufacturing
Services
1,081
792
36
Total Sales
16480
100
11586
100
42
Particulars
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
1,021.42
2381.72
756.53
2005.63
52
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International Business
Exhibit VIII
A Note on the Indian Pharmaceutical Industry
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 worlds generic drugs. The significant
presence of Indian pharmaceutical companies in the generic drugs market had been
attributed, 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 companies
as their products could be reverse engineered by Indian pharmaceutical companies
and sold in India. Due to this, many Indian companies specialized in reverseengineering, which enabled them to develop generic drugs at a very low cost. The
competition among the various Indian companies also brought the price down
further. This prompted many research-based pharmaceutical companies to either
market their drugs at a moderate premium price or simply ignore the Indian
market.
After becoming a member of the World Trade Organization (WTO), India had to
comply with TRIPS53 (trade-related aspects of intellectual property rights). TRIPS
ensures that profits from any new product go exclusively to the innovator (patent
holder) for the full duration of the patent. TRIPS came into force on January 1
1995, but some developing and transitional economies were given time to comply
with 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 patients
access 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 newly
introduced TRIPS legislations were allowed to copy any drug that was patented
before 1995, i.e. before the introduction of TRIPS. Those companies that seek to
copy drugs patented after 1995 can do so under a system called compulsory
licensing, if the company that owned the patent was found to have misused its
rights.
On December 27, 2004, the Indian government issued a temporary executive order
to meet the January 1, 2005 deadline. The Indian Parliament passed the new patent
law recognizing product patents, in March 2005. However, the law did not impact
those products invented before 1995 and generic companies still had the right to
continue 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 them
did not have the R&D capability to discover new drugs. In such a scenario, the
research-based pharmaceutical companies were expected to be more open to
introducing new products in the Indian market, while most Indian companies
would be dependent on marketing licenses to market these new drugs in India.
Indian pharmaceutical companies were also focusing on contract
53
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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 companys share prices in anticipation of the deal. 54 These
reports followed reports earlier in the year that the worlds 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 Matrixs 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 NV 59 and UBS AG60.
54
55
56
57
58
59
60
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International Business
There were two phases to the Mylan Matrix deal. In the first phase, Mylan purchased
51.5 percent of the paid up share capital of Matrix in accordance with the agreement
made with certain selling shareholders. In order to do so, Mylans wholly-owned
subsidiary, MP Laboratories Ltd. (Mauritius) entered into a Share Purchase
Agreement (SPA) with key shareholders of Matrix viz. Prasad, N Prasad HUF61, G2
Corporate Services Limited, Maxwell (Mauritius) Pte. Limited 62, 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 acquire
20 percent of Matrixs share capital held by the general public. This was done in
accordance with SEBI65 regulations.
On completion of the open offer on December 21, 2006, and closing of the SPA,
Mylan acquired 71.5 percent of Matrixs total paid-up share capital. Both these
transactions were performed at Rs.306 per share (US$6.84 per share), putting the deal
at US$ 736 million, an approximate 15 percent premium to the last 30-days average
stock price of Matrix. Though the price to revenue multiple in relation to the market
value 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 of
17.2x.66 On January 8, 2007, Mylan finally closed the purchase of 71.5 percent of
Matrixs outstanding share capital. Though Mylan acquired the controlling stake in
Matrix after completion of the transaction, the rest of its share still continued to trade
on the Indian Stock Exchanges (Refer to Exhibit IX for the shareholding pattern of
Matrix). Mylan said that Matrix would continue to operate as an independent entity
after the deal.
One of the strategic pre-conditions attached to this deal was induction of Prasad on
Mylans Board of Directors as head of Global Strategies. Prasad was highly regarded
in the industry as a wealth creator who had bought Matrix for Rs.30 million in 2000
and sold it for an enterprise valuation of Rs.62.1 billion in 2006. 67 This precondition
was intended to make Mylans entry into the global API landscape a successful
venture backed by Prasads long experience in the global API industry. It was also
intended to keep Prasad away from launching a new pharmaceutical company as he
was reportedly keen on pursuing his entrepreneurial dreams. Prasad invested US$25
million 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 in
Mylan and joining their management team heading the global business strategies is to
ensure confidence levels of the Matrix shareholders, employees, and also to the new
partner Mylan,69 said Prasad.
61
62
63
64
65
66
67
68
69
HUF (acronym for Hindu Undivided Family) is a legal taxable entity in the eye of law and
Income Tax Act of India.
Maxwell (Mauritius) is an arm of Singapore-based investment company, Temasek Holdings.
It held a 13.8 percent stake in Matrix.
Newbridge Capital is a joint venture between Texas Pacific Group and Blum Capital
Partners. Along with its entities, it held a 26 percent stake in Matrix.
Spandana Foundation is a charitable trust promoted by Prasad.
SEBI (acronym for Securities and Exchange Board of India) is the regulatory authority of
Indian securities markets.
Mylan Buys Matrix for $736 Million: Buys Indian Firm to Enter Asian and European
Markets, www.levinassociates.com, 2006.
Gina S Krishnan, Matrix Unloaded, www.businessworldindia.com, September 11, 2006.
Mylan Lab Acquires Stake in Matrix, www.ciol.com, January 9, 2007.
CR Sukumar, Matrix Promoter May Turn Angel Investor, www.thehindubusinessline.com,
September 2, 2006.
442
Exhibit IX
Shareholding Pattern of Matrix
12%
1% 5%
1%
10%
71%
Indian Promoters
Foreign Promoters
Institutional Investors
NRIs
Indian Public
Foreign Nationals
71
443
International Business
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 utilizing
Docpharmas sales network, Mylan expected to market its products in the European
markets.
The inclusion of Matrixs world class 10 APIs and intermediate plants would enhance
Mylans back-end supply chain capabilities and provide a low-cost raw material
sourcing platform. This was expected to eventually improve Mylans 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
Mylans manufacturing centers.72 However, Mylans spokesman Patrick Fitzgerald
said that the company was not interested in off-shoring its manufacturing to Matrixs
facilities. What we will be doing is source our APIs from Matrix and also expand our
high-barrier-to-entry product capabilities Matrix is the worlds largest supplier of
generic anti-retroviral APIs and will allow us to be a leader in HIV medications, 73 he
said.
According to Mylan, Matrixs product portfolio in the solid dosage forms did not
clash with that of Mylan but rather complemented it. Matrix being the worlds largest
supplier of generic ARV APIs, Mylan would now be able to enter into the highbarrier-to-entry product segments, particularly in the area of ARV. Matrixs 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 of
ANDA 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
74
Atul Sathe, How Mylan Can Turn around Matrix, www.rediff.com, September 18, 2006.
Mylan in Indias Biggest Pharmaceutical Takeover as it Enters the Matrix, www.inpharmatechnologist.com, August 30, 2006.
Mylan Laboratories to Acquire Up to 71.5% Controlling Interest in Matrix Laboratories,
www.matrixlabsindia.com, August 28, 2006
444
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77
78
79
80
445
International Business
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 22x
Matrixs expected earnings. This was high, considering the Indian drug sectors
average multiple of 18x. However, Mylan defended the deal, explaining that the
acquisition was a calculated risk essential to enable it to expand its presence beyond
US 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 couldnt
afford to ignore keeping the future in mind. 81
Some analysts felt that it wouldnt be easy for a company like Mylan, which had only
operated in the US, to suddenly transform itself into a global generic drugs
company.82
81
82
83
84
85
86
Mylan Buys Matrix for $736 Million: Buys Indian Firm to Enter Asian and European
Markets, www.levinassociates.com, 2006.
Mylan in Indias Biggest Pharmaceutical Takeover as it Enters the Matrix, www.inpharmatechnologist.com, August 30, 2006.
Mylan Lab Acquires Stake in Matrix, www.ciol.com, January 9, 2007.
UPDATE 1-Mylan Reorganizes Management after Matrix Deal, www.today.reuters.com,
January 31, 2007.
Mylan Laboratories Announces Strategic Global Reorganization to Maximize Growth
Opportunities and Leverage Efficiencies Provided by New Global Platform,
www.drugnewswire.com, February 1, 2007.
Mylan Laboratories Ups 2007 Outlook, www.businessweek.com, February 1, 2007.
446
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
Mylans 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 KgaAs 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
88
89
90
91
447
International Business
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 up
to 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
93
448
2.
3.
4.
Mrinalini Datta, Mylan Labs to Acquire India Rival, www.iht.com, August 28,
2006.
5.
6.
7.
8.
US-Based Mylan Buys Majority Stake in Matrix, www.indiatimes.com, August 29, 2006.
9.
10.
Joshua Owide, Mylan Laboratories: Entering the Matrix, www.pharmaceuticalbusiness-review.com, August 30, 2006.
11.
12.
13.
Surojit Chatterjee, Mylan Buys Majority Stake in Indias Matrix Lab for $ 736
Million, www.in.ibtimes.com, August 30, 2006.
14.
CR
Sukumar,
Matrix
Promoter
May
www.thehindubusinessline. com, September 2, 2006.
15.
J.Padmapriya, Matrix Founder Prasad Set to Get into the Groove at Mylan,
www.economictimes.indiatimes.com, September 9, 2006.
16.
17.
18.
Atul Sathe, How Mylan Can Turn around Matrix, www.rediff.com, September 18, 2006.
19.
20.
Brian Lawler, The Coming Generic Drug Boom, www.fool.com, October 16, 2006.
21.
Nath Balakrishnan,
December 3, 2006.
22.
23.
24.
Mylan Buys Matrix for $736 Million: Buys Indian Firm to Enter Asian and
European Markets, www.levinassociates.com, 2006.
25.
Mylan Laboratories
Completes
www.cnnmoney. com, January 8, 2007.
Matrix-Mylan:
Accept,
Matrix
Turn
Deliver
Angel
Profits
Investor,
to
CMOs?
www.thehindubusinessline.com,
Laboratories
Transaction,
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International Business
26.
27.
28.
29.
30.
31.
32.
33.
Tova Cohen and Steven Scheer, Teva Pharma Seen Best Placed to Win Merck
Generics, www.reuters.com, May 8, 2007.
34.
CR Kumar and Bhuma Shrivatava, Mylans India Unit Key to Merck Buy,
www.livemint.com, May 14, 2007.
35.
36.
37.
38.
39.
40.
41.
Mylan Outbids Teva and Private Equity Investors to Acquire Merck KGaAs
Generics Unit, www.globalinsights.com, 2007.
42.
www.fundinguniverse.com
43.
www.myiris.com
44.
www.globalinsight.com
45.
www.googlefinance.com
46.
www.matrixlabsindia.com
47.
www.mylanpharms.com
48.
www.wikipedia.com
450
after
Matrix
Deal,