Pharmaceutical giants tracking Mylan's prosperity

| Wednesday, Aug. 13, 2008

Analysts say that CEO Robert J. Coury's efforts to shove Mylan Inc. onto the world pharmaceutical stage could lead to one conclusion -- a Mylan takeover.

"Mylan undoubtedly is being looked at," said Ken Cacciatore, who follows Cecil, Washington County-based Mylan for Cowen & Co. in New York. "In a consolidating industry, with international opportunities being looked at more and more, Mylan definitely is in an advantageous position. If a large pharmaceutical company is looking to diversify, Mylan is an obvious choice."

"Mylan is certainly on the radar screen of Pfizer and Novartis," said David Moskowitz, a Washington, D.C.-based analyst who follows Mylan for Caris & Co., New York.

Mylan might garner some $6.8 billion in a buyout, according to Motley Fool contributor Brian Orelli, after subtracting corporate debt of $4.7 billion.

New York-based Pfizer is the world's second-largest pharmaceutical company and Basel, Switzerland-based Novartis is the fifth-largest.

Last year, Mylan spent $740 million to acquire a majority share in the world's second-largest generic drug ingredient maker, India's Matrix, then overruled conventional wisdom of some industry watchers by spending $6.8 billion -- 70 percent more than Mylan's value at the time -- to acquire the generics business of Germany's Merck KGaA.

Within months, Mylan jumped from third-largest generic drugmaker in the United States to third-largest generic company in the world with 13,000 employees and a product portfolio of 570 market products, doing business in more than 90 countries.

Cacciatore said it's much easier to buy a distribution network like Mylan's rather than try over time to build one. "You have scale built-in and already in place," he said.

The only part of Mylan that hasn't grown in the last year has been the company's stock price, which is mired in the $13 range. Its highest stock price in the last year was $16.87, reached on Oct. 3, the day after the Merck deal closed. Mylan's market capitalization today is about $4.3 billion. Its stock closed Tuesday at $13.66, down 32 cents.

Cacciatore in a recent research note projected that Mylan's revenues will jump 110.4 percent in four years, to $5.6 billion in 2011, from $2.7 billion last year. Operating profits, excluding all merger-related charges, in the same timeframe will more than double, to $651.4 million from last year's $325.5 million.

"Coury's delivering on promises on the way to digesting two acquisitions last year," analyst Moskowitz said.

Coury said on the day after the Merck generics deal closed in October that one of his next goals was to have a women's health care portfolio, including products such as hormone replacement and birth control drugs.

Last week, Mylan announced it had signed a deal with India-based Famy Care Ltd. to develop and supply 22 oral contraceptive medicines to U.S. customers. "Through our partnership with Famy Care, we have met another long-standing commitment by expanding our portfolio to create a women's health care franchise," Coury said. He could not be reached for comment yesterday.

"Entering the oral contraceptives field, that currently is a duopoly controlled by Barr Pharmaceuticals and Watson Pharmaceuticals, makes Mylan more attractive," Moskowitz said.

Barr is one of the most recent acquisitions in the pharmaceutical business. Earlier this year, the world's No. 1 generic drug company, Israel-based Teva Pharmaceutical Industries Ltd., announced it would pay $7.5 billion plus assume $1.5 billion in debt for No. 4 Barr.

Another recent merger brought together Japan's third-largest branded drugmaker, Daiichi Sankyo, with India's largest generic drugmaker, Ranbaxy Laboratories, in a $4.6 billion deal.

"It's not clear if any of the large pharmaceutical companies will get involved in buying generic companies," Cacciatore said. "Novartis with Sandoz already is one of the top three generic companies."

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