Mylan bets billions on India

Its eight acquisitions, the latest being Agila, are driven as much by the country's low-cost production base as by the large size of its market

US-based Mylan, one of the world's largest makers of generic medicine, entered India in 2007 with the purchase of Hyderabad-based Matrix laboratories for $736 million. Since then, it has acquired seven more companies. The last, and the biggest, of these happened last month when the government cleared its $1.6-billion buyout of Agila Specialities, the injectable medicine subsidiary of Strides Arcolab. Later in the month, Mylan also won US antitrust approval to buy Agila, subject to divesting assets needed to make 11 generic injectable products. As a result, Mylan is hopeful of closing the acquisition by the end of this year.

Once the Agila acquisition is sealed, Mylan will have a formidable footprint in the country: 14 production facilities and over 11,000 employees. Many analysts feel Mylan's India strategy is driven by the cost factor: it is cheaper to produce medicine in India and then ship it to elsewhere in the world. With the global generics market getting more and more cramped, this cost advantage becomes crucial. India, given its long history of producing generic medicine at a low cost and its strong pool of chemical engineers, can be leveraged by global companies like Mylan. Hemant Bakhru, an analyst with brokerage CLSA, says the main consideration for Mylan to acquire Agila was also cost: "The production cost of injectable medicines in India is at least 50 per cent cheaper when compared to the US."

Mylan President Rajiv Malik, an ex-Ranbaxy hand, plays down the cost advantage. "Everything is not about costs," he says.

For Mylan, Malik says, India is an important market for differentiated quality products. Here, much like other sectors, Malik is taking a long-term view of the country. Many pharmaceutical companies believe India and China are the markets of the future, especially India because of its young population-almost half of its 1.21 billion people are below 30. And India is at that stage of development where the per-capita expenditure on healthcare is all set to take off. This makes India a long-term bet. But it's not a market for the fainthearted. India is also the most competitive market in the world; over a hundred brands of most medicines are available at chemist stores. Cracking this market is anything but easy.

Still, Mylan is ready to slug it out in India-it intends to be among the top 10 players in the country. And the main plank of its growth strategy is acquisitions. Each of the eight acquisitions has been carefully thought through and is meant to plug a specific gap in its portfolio. Thus, it plans to leverage Agila's injectable portfolio to launch a commercial business in oncology as well as several other critical-care products later next year.

That apart, Mylan wants to be a part of the Indian ecosystem that challenges patents held by multinational corporations. As the pipeline of new drugs begins to dry up, multinationals stand accused of ever-greening their patents -extending them on one frivolous ground or the other. Several Indian companies have built a successful business model out of challenging such attempts. "As a generic multinational company, we see an opportunity if a patent is frivolous. Even though we respect patents, if a patent should not have been granted in the first place, we definitely would like to go after that patent and see if we can bring out a quality product," says Malik.

Location matters
The company's India focus is also driven by the country's well-established supply channels to other emerging markets. The first five years of Mylan's operations in India have been spent in preparing to enter new emerging markets in Southeast Asia, Africa and South America. The period, says Malik, was marked by huge investments in research & development (R&D) and building capacities in APIs (active pharmaceutical ingredients) and finished dosages. The company invested Rs 450-500 crore on R&D, while its employee strength in the country went up from 2,000 to 10,000 during this phase. The acquisition of Agila will now add another 1,700 employees to its workforce.

It also made a string of acquisitions during this period. After Matrix, which strengthened its capacity in anti retrovirals, it acquired an API manufacturing unit in Visakhapatnam in 2009 and Atra Pharmaceuticals , a finished dosage plant in Aurangabad. This year alone, Mylan has done five acquisitions: SMS Pharma and Injectables' manufacturing unit in Visakhapatnam, Vivin Life Sciences in Vijayawada, Glochem (a finished dosages plant in Hyderabad), another fixed dosages facility in Indore and Agila.

"We have built two more API plants last year and have also acquired a small facility from Unichem Laboratories, which has not even been commercialised," says Malik. In addition, Mylan also transformed Matrix into a strong, robust platform for APIs and anti-retrovirals. The efforts are already paying off. Today, it accounts for 38-40 per cent of the anti-retroviral market in Sub Saharan Africa.

The second phase of Mylan's operations in the country started last year when it began to operationalise some of its investments. It launched several products to treat HIV-AIDS and followed them up with products in the women-care segment-focused on therapies such as hormones and pre-and and post-natal nutrition and management. "Now, our plans include launching two therapeutic lines every year, mostly in the areas of oncology and critical-care products," Malik says. "India is a significant growth driver for us."

According to Mylan's annual report, Agila will expand and strengthen Mylan's injectables portfolio and help it gain entry into new markets such as Brazil. Agila will bring to Mylan's fold an additional six manufacturing facilities to produce injectables in India, doubling its injectables producing capacity by 2014. According to reports, Mylan is targeting about $2 billion revenue from injectables by 2018 by launching more than 800 products, with 150 of those in the US. The company hopes to grow in the future through both greenfield and brownfield acquisitions. "I neither confirm (more acquisitions) nor deny that. We keep on looking at our portfolio of assets and opportunities. It is not limited to India. We do it on a global scale," says Malik.

To that extent, Mylan's growth strategy has been a mix of both. The company has always ramped up the facilities that it has bought. For instance, when it acquired the Nashik formulation unit, the installed capacity of the plant was only 400 million dosages. Mylan invested about $100 million over five years and increased its capacity to 8 billion dosages. Acquisitions have helped the company bypass the cumbersome process of getting project clearances. "It saves us some valuable time from getting the projects cleared from regulatory channels. It gives us a head start," says Malik.

Long-term view
In the year ended December 2012, Mylan reported revenues and net earnings of $6.8 billion and $640 million, respectively. For the half year ended June 2012, its revenue was at $3.33 billion and net earnings at $284 million against $3.27 billion and $ 267 million, respectively, in the corresponding period of the previous year.

It is clear that Mylan is looking at India for the long term. It is not worried about the US Food and Drug Administration issuing a warning letter about Agila employing unsanitary practices. "Our plans have not changed. It is an opportunity for us to invest in whatever weak spots Agila has. Mylan is working very closely with the Agila team and soon we will have this issue behind us. This warning letter is not going to stay," says Malik. However, despite being bullish on India, Mylan is concerned about regulatory uncertainties. "I think the biggest challenge is lack of clarity in the market. At the moment, the whole industry is evolving and we will take some time to stabilise," says Malik. In this context, he emphasises the need for the industry to play a pro-active role and pave the way for a interaction between all stakeholders-the manufacturers, regulators and policy makers.

MYLAN'S EXISTING FACILITIES IN INDIA

9 Active pharmaceutical ingredients units (8 located in Andhra Pradesh and one in Maharashtra)
3 Finished dosage units (Two in Maharashtra and one in AP)
2 Injectable units (both in AP)
2 R & D units (Hyderabad and Mumbai)
1 Clinical research centres (Hyderabad)

MYLAN'S ACQISITIONS IN INDIA

* 2007 - Matrix Laboratories

* 2009 - Vivin Laboratories: Active Pharmaceutical Ingredients' manufacturing unit in Visakhapatnam

* 2010 - Atra Pharmaceuticals Pvt. Ltd: Its Aurangabad manufacturing unit for finished dosages

* 2013 - SMS Pharma: Injectables manufacturing unit in Vizag

* 2013 - Vivin Life Sciences: Injectables manufacturing unit in Vijayawada

* 2013 - Glochem: Finished Dosages manufacturing unit in Jadcherla

* 2013 - Unichem: Finished dosages manufacturing unit in Indore

* 2013 - Acquisition of Agila; expected to close in Q4 of 2013