Mylan Buys King

Mylan Laboratories, a leading generic drug company, has agreed to buy branded drugmaker King Pharmaceuticals in a stock-for-stock transaction valued at $4 billion. With the move, Pittsburgh-based Mylan says it will become the largest U.S. generic pharmaceutical company, with a significant stake in the branded drug segment. In addition, Mylan says it will be the second largest of all pharmaceutical companies in terms of the number of U.S. prescriptions dispensed.

Rather than devote resources to R&D, King has grown largely by acquiring branded products and companies--more than 60 product lines since its founding in 1994. The company has also developed a substantial marketing infrastructure in this area by selling, for example, the cardiovascular drug Altace (ramipril) and the muscle relaxant Skelaxin (metaxalone).

Mylan CEO Robert J. Coury says expanding into the branded drug business is part of the company's long-term strategy. The two companies point out that, if they had been united for the 12 months ending on March 31, the combined firm would have had approximately $3 billion in revenues and close to 6,000 employees.

In a research brief, Banc of America Securities analyst David W. Maris says he sees "underwhelming financial rationale for this acquisition." King offers Mylan a good platform to market nebivolol, a cardiovascular drug awaiting FDA approval. But he says Mylan "should get their generic house in order before deepening their commitment to a branded business that they have already shown scant ability to manage."

Other analysts view Mylan's strategy more positively, as part of the trend by generic drug companies to diversify into branded drugs to thwart pressures in the generics business