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Generics deal a shot in arm for Mylan

| Sunday, Dec. 9, 2007

About the only thing at Mylan Inc. that's standing still is its stock price.

Shares have fallen about 40 percent since May. On Friday, Mylan's shares closed at $14.14, down two cents. Since Jan. 1, shares have traded in a range between $13.25 and $22.64. Since Robert J. Coury became chief executive in September 2002, the stock has ranged between $13.16 and $28.16. And last month, debt ratings agencies cut Mylan's credit ratings, pushing its debt farther into junk-bond status.

Coury, whose enthusiasm makes it difficult to sit or stand still, dismisses the low stock price.

"If our decisions are sound, and we perform, the stock price takes care of itself," he said during a recent interview at Mylan's corporate headquarters in the Southpointe office complex in Cecil. "There's no better testament to our strategy that the ability to sell $3 billion in equity.

The stock sale two weeks ago helped pay off Mylan's recent deals.

In January, Mylan completed the acquisition of more than 71 percent of India-based Matrix Laboratories Ltd., a company with the second-largest portfolio of active pharmaceutical ingredients worldwide, and in October, it completed the purchase of the worldwide generic drug operations of German's Merck KGaA. The combined price tag was more than $7.4 billion cash. That was almost double Mylan's total market value at the time of the Merck announcement in May of about $4 billion.

Mylan sold 53 million common shares and 2.1 million convertible preferred shares raising $2.9 billion, but with it came huge dilution for shareholders.

Analysts say that with the financing behind it, investors in the stock now can look past those numbers and concentrate on future growth.

With both deals, the company founded 46 years ago as a West Virginia-based pharmaceutical distributor has become within the period of about one year the world's third-largest generic drug maker behind Teva Pharmaceutical Industries Ltd. and Novartis AG's Sandoz.

These changes come more than two years after Mylan's battle with then-largest shareholder, corporate raider Carl Icahn, over Coury's $4 billion deal to acquire brand-name drug maker King Pharmaceuticals Inc.

To rid itself of Icahn, who opposed the King deal, Mylan spent about $1 billion to buy back about 25 percent of its shares. It closed its Mylan Bertek brand-name drug unit, doubled its annual dividend to 24 cents a share, and sold the marketing and licensing rights to Nebivolol, a much-anticipated, next-generation, brand-name blood pressure medication. (The dividend earlier this year was suspended.)

When those moves were announced on June 14, 2005, the "old" Mylan Laboratories Inc. died, according to Coury.

"In June 2005, I told the board 'we can't stand still,'" Coury said. "I thought global from Day One," said Coury, who became Mylan's CEO in 2002, following time as a Mylan consultant.

Behold the new Mylan, now known as Mylan Inc.

"It absolutely was the right move for Mylan to acquire Merck's generic business," said analyst Ken Cacciatore, who follows Mylan for Cowen & Co., New York. "Prior to the buy, Mylan was dependent on single-product drivers and only did business in the U.S. market." Cacciatore owns a position in Mylan, he believes the price will rise, and Cowen has done business with the company within the last 12 months.

The Matrix deal, which closed in January, gave Mylan its own active pharmaceutical ingredients provider, complete with an established European ingredient hub, all manufactured utilizing a low-cost work force.

The Merck deal gives Mylan the world as a marketplace. The combined company employs about 12,000 people worldwide, more than double Mylan's previous staff level. Aside from 200 workers at headquarters, Mylan employs about 2,000 people at its main research and manufacturing center in Morgantown, W.Va. The company employs about 3,000 in Europe and India, the result of the Matrix acquisition.

Merck Generics sells in more than 90 countries and is the leading generic drugmaker in France, Scandinavia and Australia. It's the No. 4 player in Japan, a country where the generics business is about to explode, as the Japanese government proposes generic drugs become the default prescription option over name brands.

Japan is the world's second-largest drug market, with generics prescribed 17 percent of the time, compared to about 65 percent in the United States.

Five equity analysts have upgraded Mylan's shares to "buy" since Labor Day. Goldman Sachs' Randall Stanicky wrote in a Nov. 27 research note that he was raising Mylan to "buy" from "neutral" with a $19 share price target.

"A key overhang (the common and preferred-share sale) is now behind us, despite dilutive characteristics, the recent deal and associated financing have re-set investor expectations with a now-viable upside story in shares at new levels," Stanicky wrote. "The Merck generics acquisition has positioned Mylan well to take a global leadership position with potential for longer-term competitive advantage."

To help Mylan transition to an international player, Coury is hiring top executives from other pharmaceutical companies with solid international experience. Over the last few months, outside hires, internal promotions and Merck and Matrix transfers have produced a new global general counsel, chief operating officer, treasurer, human resources director, chief information officer, chief compliance officer and presidents of three regional operating units.

Stanicky sees Mylan profits by 2009 hitting $362.3 million on revenue of $5.2 billion, up from $188.7 million on revenue of $1.3 billion in 2006. He likes the fact that Mylan retained most, if not all, of Merck generics' management. Goldman Sachs has had recent business dealings with Mylan.

"With Merck, we have a more stable platform," Coury said, adding that 2008 is Mylan's year to "hunker down," concentrating on executing its plans for Merck, including squeezing what Stanicky projects as $317 million out of the company by eliminating duplicate operations.

Mylan Inc.'s corporate headquarters is located in Southpointe. The company has locations across the globe.

At a glance

Founded: 1961 by Milan "Mike" Puskar and Don Panoz in White Sulphur Springs, W.Va., as a pharmaceutical distribution company

Headquarters : Southpointe office park, Cecil, Washington County

Chief executive: Robert J. Coury

Employees : About 12,000

Primary businesses: 570 products -- generic, specialty pharmaceuticals and branded generics, active ingredients

Recent acquisitions: Majority stake in Matrix Laboratories Ltd. (January), and Merck KGaA's generic business (October)

Manufacturing plants: 23 facilities in 12 countries, including Puerto Rico

The sites include: Morgantown, W.Va.; St. Albans, Vt.; Sugar Land, Texas; and Napa, Calif.; Caguas, Puerto Rico; Nashik, Hyderabad (four), Vizag, Ahmedabad and Mumbai, India; Cape Town, South Africa; Xiamen and Dafeng, China, as well as Dublin, Ireland; Toronto, Canada; Melbourne, Australia; Potters Bar, United Kingdom; Manlleu, Spain; Kawagoe, Japan; and Auckland, New Zealand.

Manufacturing capacity: 45 billion doses annually

Revenue (six months): $1 billion

Profit (six months): $229.6 million

Geographic footprint: 92 countries

Source: Tribune-Review research

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