Mylan Laboratories: Acquisition Creates a Top-Three Generic Player
Posted on: Wednesday, 16 May 2007, 12:00 CDT
Mylan is set to significantly expand its generic drugs portfolio having beaten rival Teva to the acquisition of Merck Generics, in a $6.7 billion deal. On consolidation, the generics company will boast annual sales of $4.2 billion, making it the third largest generics business across the global healthcare market, behind Teva and Novartis' generics unit, Sandoz.
The acquisition is the second major piece of merger and acquisition activity conducted by Mylan, increasing its portfolio to 500 marketed generics products and expanding its staff to 10,000. Its first came in 2006, when it bought control of India-based API manufacturer, Matrix Laboratories, a move which gave it its first foothold outside of the US generic market and access to less costly manufacturing.
Geographical expansion has proved to be a common motivating factor in both the acquisition of Matrix and the capture of Merck. The company's growth strategy is designed to ensure enhanced market presence for when patents covering a number of blockbuster therapeutics expire in the coming years and to offset the growth restrictions placed by the increasingly saturated state of the US generic market. The two M&A targets should themselves prove synergistic.
The deal is not without its risk, however. At more than five times Mylan's annual revenues of $1.3 billion, the associated debt will have short-term implications on Mylan's financial position. Successful identification of synergies during integration could dampen an anticipated reduction in the new company's earnings potential. In the long-term, Mylan's enhanced competitive position - underlined by improved R&D capabilities (diverse dosing formulations) and increased manufacturing volume - should manifest as growth and profitability.
Merck will itself benefit from the divestment, despite the near-third of total revenues attributed to its generic arm that it will lose. The capital raised by the transaction is sizeable and, alongside its tightened corporate focus, should create opportunity for the hybrid company to expand its presence in ethical and OTC pharmaceuticals, or its chemicals unit with M&A of its own.
Source: Datamonitor
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