If Mylan CEO Heather Bresch manages to complete the $27.1 billion hostile takeover of Ireland-based rival Perrigo, it would perhaps be her most valued acquisition and help her position the $7.72 billion generic and specialty pharmaceuticals company as one of the top three global generic pharma players. But then, successfully thwarting a similar attempt by another rival, Teva Pharmaceuticals, to acquire Mylan for $40 billion barely two months ago on July 23, was no mean deed either. In fact, the 46-year-old has been making history ever since she joined Mylan as a clerk in 1992, steadily rising up the ranks to serve as the companys chief operating officer, chief integration officer and president, before taking over as the first ever woman chief executive of a global pharma major. Bresching with history could well be the pharma sectors catch phrase as long as she continues to conquer new frontiers by acquiring and successfully merging entities into Mylan. Breschs love story with India started in 2007, when she was instrumental in buying out Hyderabad-based Matrix Laboratories for $736 million. Since then, Mylan has invested $3 billion on acquisitions in India and regards the country not just as a global sourcing hub, but also as a market. In fact, more than half its global employees and 14 of its total 38 plants approved by the US Food and Drug Administration (FDA) are in India. On the sidelines of Business Todays Most Powerful Women in Indian Business awards, where Bresch was the chief guest, BTs P.B. Jayakumar caught up with her to understand how the generic pharma sector is consolidating globally and Mylan's role in leading the transition from the front. Excerpts:
Q- Are you confident of gaining control of Perrigo?
A- Perrigo is an Ireland-based company. And, the takeover rules in Ireland stipulate that if you get 50.1 per cent at the tender offer of shares, you get to control the board. The tender offer is open for 60 days and if we get to 50.1 per cent, as per the Irish takeover rules, then there will be another 14 days of mandatory offer to tender the shares of other willing shareholders. Then there is another 60 days of second tender offer, which will be at Mylan's discretion. We have received 66 per cent of our shareholder vote for the acquisition. We have strong support of our shareholders and there are many common shareholders (overlap) in Mylan and Perrigo. Though the market is volatile, we are confident of getting over 50.1 per cent. And, we think we have the ability to run the company, though there will be some administrative burden.
Perrigo is more of an over-the-counter company and Mylan is a generic prescriptions company. Both operate mainly in the US market and there are going to be some business overlaps. What are your synergistic benefits from this deal?
We are limited on how much we can reveal on the benefits. We have said we expect $800 million of operational synergies to get by year four. As per the Irish takeover rules, you have to audit synergy benefits and, in our case, PwC did an audit. Revenue synergies are not in our control, so we cannot report on that. Between us, there are opportunities to get vertically integrated, and outsource and rationalise some of the manufacturing. This is a complementary transaction, not just a synergy play. Stocks were up when we announced our plan and analysts were favourable on this transaction.
Q- The way the valuations of generic pharma companies are going up, how much of these acquisitions are rooted to reality?
A- Consolidation is happening across the pharmaceutical industry. More the industry globalises, more consolidation will be necessary to have the size and scale to compete as the lines continue to get blurred between specialty and generic pharma companies. For us, 85 per cent of the business is from global generics sales. We believe Mylan has continued to differentiate itself and we have done acquisitions to build upon our core foundations and competencies.
Eight years ago we acquired Matrix. It allowed us to vertically integrate. It was then the largest pharmaceutical acquisition in India. Immediately after, we bought Merck KgaA's generic assets to expand our commercial footprint. It (the company) was two-and-a-half times our size. It was seen as a very unorthodox and unconventional acquisition at that point in time. Between Merck and Matrix, we were able to build operational excellence, create a global supply chain and infrastructure. Then we bought Abbott's speciality generics and injectible business of Agila Specialties. We continued to look at having critical mass, whether it be around dosage forms, or therapeutic areas. And, we continue to look at creating critical mass, build and grow. For us, it is just not synergy play, cutting costs or build a financial bridge. We have been growing at over 27 per cent in the past few years and have delivered tremendous returns to our shareholders.
It need not always be people versus profits. You can take care of the people. They are the best assets. And, a well run company delivers great returns to the shareholders. We have been able to show that and we continue to do that. Our HIV franchise serves 50 per cent of the developing market. The acquisition of Famycare will give us critical mass to women's healthcare and Abbott's specialty generic acquisition has provided great commercial infrastructure. Perrigo will be the right step to diversify and change the paradigm of getting business done. This industry continues to consolidate and we want to continue to be a consolidator. For some reasons, if we do not get Perrigo, we are not going to sit still as there are plenty of assets available out there. Our core philosophy has been to provide quality affordable medicines to seven billion people and, today, we have taken the same concept forward and just expanded on it globally.
Q- After this hyper consolidation, how many companies will actually survive? Three? Four? And, how will the global markets carve out?
A- Today there are three - Teva is buying Actavis (generic arm of Allergan), Novartis's Sandoz and Mylan. I don't believe three will go down to two, because FTC and other regulatory bodies around the world oversee competition. But, after the top three, there is a big gap. There will be more consolidation with these smaller players. The smaller will continue to create critical mass, but the top three will differentiate themselves. Our focus and commitment is to the generic space, in breaking barriers and moving from the US to Europe and to emerging markets including India and Brazil. That is how the healthcare market will develop.
More the industry globalises, more consolidation will be necessary to have the size and scale to compete
A- We can say there is definitely a balance between innovation and competition. Both have a very vibrant marketplace. The Hatch Waxman Act (rules for generic drug sales in the US) over the years has helped to maintain that balance and, at times, when there were imbalances, we continued the fight to maintain that balance. Still there is a threat considering some of the trade agreements that are being negotiated and IPR (intellectual property rights) forum partnerships being discussed. That was our concern and we were vocal because if Teva was able to acquire Mylan, the whole dynamics would have changed. You are fighting on the generic side for that balance and if you are not there, that balance will change. It can lead to a situation of monopolies and block access to drugs in many emerging markets. Looking at the pipeline front, there are still lots of opportunities. Look at the top three, each has about 12 per cent market share. Still there are many therapeutic categories, dosage forms and geographic expansion, and lots of globalisation opportunities available. It is very difficult to survive solely on a domestic market to grow and compete in this industry today.
Q- If you look at the acquisitions, bulk of them are either cash or equity swap or both. Your acquisitions are more cash than equity. Is there a trend emerging of more cash than equity in such transactions?
A- It depends on what drives you to the acquisition. If it is a financial acquisition - there are companies that follow that model - it will deliver you growth and accretion. If that is not working, you need to acquire something else to maintain that growth. If the acquisition is solely for a financial target, then it tends to be more of cash to make it more accretable for favourable tax rates or capital structure. As far as Mylan is concerned, our objective is to continue our growth which limits our debt capacity and that is why we structure our deals between equity and cash. This allows us to keep growing and continue to deliver on our commitments.
Q- How do you set your debt limit?
A- There is not a black and white line: 4:1 is where you can afford to go, if over 18 months you are able to get your cash flows back. That is a pretty good thumb rule over a period of 18 months.
Q- In terms of management integration, which was the smoothest acquisition and which was the worst for Mylan?
A- We have experienced both. It is not about buying a company, it is about the people and the culture, and how companies truly integrate. There are many companies out there doing acquisition after acquisition and not really integrating the assets. They allow these assets to operate on a standalone basis and try to get synergies. Since the Matrix acquisition, we did not try to run India from the US. Many global executives are now operating out of India. Its culture and chemistry was a natural fit and that made the operations and integration truly seamless. People like (Nimmagadda) Prasad (Matrix's promoter) and us like each other and it was natural. It was team work. Rajiv Malik, President of Mylan and the then CEO of Matrix, and I as the chief integration officer, told him that we can be 9,000 miles apart, still be next to each other. The distance was never an issue or factor and obviously that is why we had such tremendous success and continue to build upon that here.
"Selling one product in the US and a sub standard product in another part of the world will not help anybody"
Q- How are the integrations of Agila Specialties and Famycare progressing?
A- We believe Agila was a great asset to acquire. They had some of the newest facilities. In the injectable space, not many assets are available for sale globally. Having said that, we were aware that there were some inherent issues and was confident to fix them. The way we are progressing on remediation, and the discussions we have had with the FDA, we are soon going to get the standards required by the FDA. Agila is going to be the basis of providing significant volume of the injectable business for us around the globe. It is not integration and it is already a part of Mylan. As far as Famycare goes, we had a relationship with them for over seven years (as a supplier) and they are part of our team. Once we close the acquisition, there is big opportunity to tap the great work they are doing in the emerging markets. We will also get it to the markets where it does not have an infrastructure.
Q- In one of the recent interviews you had said that Indian family run businesses are run differently from how Mylan is run. What was it about?
A- I am glad to clarify on this. I was quoted out of context in that interview. No one loves this country better than I do and nobody has better respect for the workers here. What I said was India has become the 'pharmacy of the world' and what we did pioneer was to advocate for quality standards across the globe.
If you want to do business in the US, the yardstick for manufacturing is high, considering the size and attractiveness of the US market. The idea of selling one set of product in the US and selling a sub standard product in another part of the world is not going to help anybody. India is the pharmacy to the world and the huge volume of products coming out of India is actually good. You have higher volumes and capacity and, therefore, India is going to attract global attention.
Q- How do you plan to use the domestic market opportunities in India?
A- Our share in the Indian market is very small. But we don't want to rush. We wanted to study and understand the evolving Indian market. So, we entered it by winning some tenders for HIV medicines and we launched an oncology product. We are building here brick-by-brick to get the right foundation. That is why we are looking at investment opportunities. We want to figure out the right product or way for the right entry. Our global mission is to make Mylan a household name, whether in India, the US or Europe.
Q-You made three major acquisitions in India in the past decade and have made lots of investments in the country, especially in R&D in Bangalore. How much have you invested in India?
"In India, we are building brick-by-brick to get the right foundation... to figure out the right product or the way for the right entry"
Q- What's the production advantage from India?
A- Obviously its low cost. We have facilities across the globe with all kinds of cost infrastructure, from the US to Asia and Japan. We need to act really smart to get the economies of scale.
Q- Many pharma companies are moving headquarters to countries like Ireland. Is the tax structure an issue in the US?
A- I think the US tax code needs to be totally reformed. Quite honestly, we were the last in our industry to invert. I was at the Capitol Hill several years ago telling them (law makers) that it was such an unlevel playing field. We are competing with people having 5 per cent tax rate. We are competing with people having cost-effective capital. You are putting companies under a draconian tax system. The structure does not marry the relevant global economy of today. We moved as part of the Abbott transaction, because of the assets and nature of the transaction, which gave us the opportunity and we took it.
Q- India is also becoming a country with a convoluted tax structure. Have you faced any issues?
A- India has been doing a pretty good job with its tax-free development zones. Your CSR (corporate social responsibility) model is something the rest of the world should follow. It is a great thing to give back to the country, especially when you are developing. It will take time to execute such things than talking. It takes time to get the support you need to do that. There were some bureaucratic issues. So, we went and educated them. Once that was done, our acquisitions were smooth and effective.
Q- What was the rationale in bringing Abbott as your largest shareholder with 22 per cent? Was it to help you financially in bigger acquisitions?
A- It was an asset transaction and was structured as a 100 per cent equity deal. Now, they are on to 14.5 per cent. The Abbott CEO was confident to get pretty good returns on that investment. They are also supporting the Perrigo transaction.
* The earlier version of the story carried incorrect spelling of Rajiv Malik, president of Mylan. It has been corrected now.