Mylan Is Buying Big Stake In Matrix

Underscoring the pressure on generic drug companies to shave costs, Mylan Laboratories has agreed to take a majority stake in Matrix Laboratories, a Hyderabad, India-based producer of active pharmaceutical ingredients (APIs).

Mylan will purchase 51.5% of Matrix's outstanding shares and make an open offer for an additional 20% of the company. Assuming the U.S. generic drug firm is successful in acquiring the entire 71.5% stake in Matrix, the deal will be worth roughly $736 million.

Mylan expects to see significant cost savings by tapping into the Matrix manufacturing network, which is primarily based in India. Matrix, which had sales of $262 million in the fiscal year ending on March 31, has 10 API and pharmaceutical intermediate manufacturing facilities; six of them are FDA approved.Mylan had sales of $1.2 billion in its last fiscal year.

Purchasing power and manufacturing efficiencies are becoming critical in the increasingly consolidated generic drug industry. Since 2005, Sandoz acquired Hexal and Eon Labs; Teva bought Ivax; Watson merged with Andrx; and, most recently, Barr is poised to purchase Pliva (C&EN, Aug. 28, page 19).

Analysts are concerned, however, that Mylan may have bitten off more than it can chew. "We think the deal Mylan announced today may turn out to be both expensive and problematic for the company," Banc of America Securities stock analyst David W. Maris said in a note to investors. Maris pointed out that Mylan lacks sales experience in nine of the 10 countries in which Matrix has operations and has no experience running an API business.

The acquisition is the latest turn in Mylan's lengthy search for the right course for its business, which has been weakened by pricing pressure and competition in the generic drug industry. In late 2004, the company made a $4 billion bid for King Pharmaceuticals as part of a push into branded drugs but backed out after the deal was widely panned by investors. Last year, Mylan abandoned its branded drug strategy entirely and has since been on the hunt for acquisitions.