Building A Generics Giant

By Dan Schell, Chief Editor, Clinical Leader

To say Heather Bresch has seen a lot of change happen at Mylan would be an understatement.

She’s been with the company for 19 years, and when she started, there were about 500 employees and approximately $100 million in sales. Today, the Pittsburgh-based generics manufacturer has more than 15,000 employees and more than $5 billion in revenue and is the third-largest generics and specialty pharmaceutical company in the world. To achieve those numbers, Mylan has gone global in recent years, and through acquisitions it now has commercial operations in more than 140 countries and territories. Bresch, the company’s president for the past year, recently discussed with me the challenges of building a global pharmaceutical company and what obstacles Mylan faces at present and in the future.

Prior to 2007, Mylan had been a domestic company with nearly all of its products being brought to market in the United States. Its development was focused on hard-to-formulate products, the types of products that had a high barrier to entry in the market. “Thus, year after year, we had products on the market that had little to no competition from other generics for as long as four to five years,” explains Bresch.

But the generics market — like the overall pharmaceuticals industry — was changing, especially with more companies going global. Remaining a domestic company was no longer an option for Mylan.

In 2007 everything changed for Mylan. That was the year Mylan Chairman and CEO Robert Coury took the company global via acquisitions. “We needed to look both horizontally and vertically to create the scale that would be needed for a truly global platform [i.e. business locations worldwide],” Bresch explains.

The first acquisition, which closed in January 2007, was of a majority interest in Matrix Laboratories Limited, a supplier of APIs. Matrix added locations in India, Europe, China, and South Africa to Mylan’s footprint. “This acquisition filled our need for vertical integration, considering they were one of the largest API suppliers in the world with a product base across a lot of therapeutic categories. But, they were also in the beginning stages of finished dosage form development. So we saw this acquisition as a big opportunity,” Bresch says.

The next acquisition, which was announced only a few months later in May 2007, surprised a lot of industry insiders when Mylan won the bidding war for Germany-based Merck KGaA’s generics business. This significantly expanded Mylan’s global presence, especially in Europe and the Asia-Pacific region, and made the company the third-largest generics company in the world.

With such rapid expansion, the integration issues were obviously daunting. For instance, the Merck generics business had about 75% of its product inlicensed, while Mylan had strong internal R&D and technical operations capabilities. In addition, since Mylan had always developed and manufactured what it sold, it had a higher degree of supply chain control compared to the Merck generics division. There would need to be a serious mindset change to integrate these new companies.

That meant achieving alignment with all of the top management in these new countries and regions. But to do so, Bresch knew Mylan couldn’t have the attitude that everything had to be done the U.S. way. So, company executives took the time to travel to each new market to learn the dynamics of each region — an important step considering the generics business is very different in each country. “We weren’t going in asking people to change what they had done so well. Instead, we wanted to show them what we’ve created and what we could do together to enhance their current businesses. It’s important that you take the time and energy to align management. Integrating all of these people together isn’t an easy task.”

At the end of 2007, the company set a three-year goal (i.e. the end of 2010) for the full integration (and resulting benefits from their synergies) of these acquisitions. Essentially, Mylan wanted to have the base of its future business platform created by then. According to Bresch, the company is ahead of schedule regarding the synergies achieved from its integration efforts. Thanks to efforts such as recent material sourcing negotiations that reduced expenses, the company plans to not only achieve, but exceed its cumulative synergy target of $300 million by the end of 2010.

Driving Utilization Rates
In conjunction with its global integration efforts, Mylan also has increased its efforts at improving generics utilization rates in other countries. “The United States is the only country in the world with mandatory generics substitution; consequently, the utilization rate is above 70% here,” Bresch explains. “Some markets within Europe are primarily company-branded markets, and the distribution and utilization are very different. For instance, in France, which is our number one market in Europe, we have approximately a 31% market share. However, the generics utilization rate in France is only about 20%.”

Mylan has been working with governments in various markets trying to understand their different healthcare challenges and exploring how to help drive higher utilization rates. The best example of this is in Japan, which has a utilization rate of about 20%. The Japanese government, though, wants that percentage to increase to 30% by 2012.

Essentially, Japan has the same problem that the United States did in the 1980s and early 1990s — its population believes generics are not equivalent to the original drugs. In the United States, the FDA did a good job of educating the public that generics were the same, and they were FDA-approved. Mylan is suggesting a similar educational campaign.

“We have gone to Japan several times, most recently in December 2009 when I spoke during a couple of days to the U.S. embassy, our customers, pharmacists, physicians, government officials, etc., trying to educate them on how to increase generic utilization,” explains Bresch. “Often, it comes down to educating the population that generics are the same as branded drugs. So, we explained best practices [similar to those done by the FDA] to the Japanese Ministry of Health, Labor and Welfare [MHLW]. We also explained that pharmacies need incentives, too. What helped promote generic utilization in the United States is that pharmacies were able to make better margins with a generic than a branded drug.” (Japan recently announced some proposals that would dramatically increase incentives to pharmacies, and the country is hoping those go into effect in April.)

The Challenge From Big Pharma
While Mylan has been creating its global generics platform, some big pharma companies have been trying to become generics players in emerging markets. In theory, this strategy could actually help generics companies by increasing the utilization rates. But Bresch is skeptical that many big pharma companies will be able to enter the generics market, much less be successful with a generics model. “In the 1990s a lot of them tried starting generics divisions and most closed. I think now, for very different reasons, they are considering reentering the generics business. Acquisition is one way they could get into generics quickly, but I don’t think there are many truly global generics platforms available. A generics platform has broad breadth, large volume, and large capacity, and provides the ability to compete very cost-effectively. Everything I just said is the opposite of a brand mindset. Since we have those capabilities, it would be much easier for us to go to branded products than vice versa.”

Mylan already has a specialty division (branded products in the respiratory, allergy, and psychiatry marketplaces) called Dey Pharma in the United States that was also part of the Merck generics acquisition. Bresch says the company is extremely focused on Dey and continues to look for complementary products to add to that division. (Dey, which produces the EpiPen Auto-Injector, saw its 2009 fourth quarter total revenue rise 8% to $87 million.)

Biogenerics: The Future
It’s widely accepted that biogenerics are the wave of the future for the generics industry. That’s why last year Mylan entered into a strategic partnership with India’s Biocon Ltd., an expert in biopharmaceutical solutions, to share development, capital, and other costs related to biogenerics. Mylan will have exclusive commercialization rights in markets such as the United States, Japan, and certain European countries and share them elsewhere. Bresch says Mylan has biogenerics in development, but declined to say which ones.
“We believe for biologics to be a profitable business, we need to launch them globally,” she explained. “We are looking at the United States, our current markets, and emerging markets. However the pathway ends up developing in the United States, we are going to be a player, and we will be there at market formation. But, we are not relying on the U.S. pathway or the U.S market for biologics to be a successful venture for us.”

Bresch is referring to the current debate over government healthcare proposals that provide a 12-year biologics exclusivity period. The brand-name drug companies and the biotech companies want the 12-year period; the generics industry doesn’t, stating that enacting such a rule would stifle competition and delay savings to the end user. “I think it is a terrible policy,” Bresch says. “A double-digit exclusivity period does not create a generics industry. The benefits our country has been used to due to generics would certainly not be realized under this proposed legislation.”

Impressive Business Metrics
Overall, Mylan has been successful at meeting many of its goals. It has reduced the amount of inlicensed products from the Merck generics acquisition to 55% (down from about 75%) and expects that percentage to drop again to 30% by the end of 2013. Nearly 50% of the company’s pipeline is vertically integrated, and the company’s stock price rose 86% in 2009. In regard to regulatory submissions, Bresch noted in the company’s Q4 2009 earnings call (transcript available at SeekingAlpha.com), “In the United States alone, we have more than 140 ANDAs [abbreviated new drug applications] pending approval with the FDA, more than 40 of which represent first-to-file opportunities. Further, we believe that approximately 1,000 submissions per year and about 500 launches per year represent sustainable run rates for our company.” Finally, the company expects to reach the $8.5 billion revenue mark by the end of 2013.

With growth and goals such as those, Bresch’s new role as president is likely to be her most challenging. Yet, she may also be celebrating her 20-year anniversary at the pinnacle of the company’s success.

Are Patient Settlements That Delay Generic Drug Market Entry Anticompetitive?

On June 3, 2009 Heather Bresch, president of Mylan, testified before the U.S. House of Representatives Judiciary Subcommittee on Courts and Competition Policy concerning patent litigation settlements between branded pharmaceutical companies and generic pharmaceutical companies. The committee’s hearing, “Pay to Delay: Are Patent Settlements That Delay Generic Drug Market Entry Anticompetitive?,” was called to gather information about the effects of settlements.

During her testimony, after briefly reviewing the Hatch-Waxman Act (i.e. The Drug Price Competition and Patent Term Restoration Act of 1984), Bresch began her explanation of authorized generics. “Authorized generics are, in fact, the same exact products as their branded counterparts made on the same production lines with the exact same ingredients, but before packaging, they are given a different label,” she explained. “Same product, same bottle, different label. Brand companies do not release authorized generics until the first true generic begins its 180 days of statutory exclusivity. This practice can all but eliminate the incentive for a generic filer to identify frivolous or invalid patents, invest in the research and development necessary to produce a bioequivalent and affordable generic product, and accept the risk of expensive patent litigation.

“Let me be very clear: Mylan is not opposed to authorized generics in and of themselves. Our issue lies only in the marketing of authorized generics during the 180 days of exclusivity as provided under Hatch-Waxman. Following the 180 days granted to the first generic filer, we recognize and respect the right of any company with an FDA-approved product, including the brand company, to compete in the generic marketplace. The issue is when the authorized generic is brought to market.”

In her summary, she urged Congress to restore the incentive of the 180-day exclusivity period. “A prohibition on authorized generics during the 180-day exclusivity period will also reestablish a level playing field for generic companies as they contemplate settlement with a brand company in patent litigation, thereby allowing the generic company to view settlement options without the threat of an authorized generic looming overhead.”

On June 24, 2009 the FTC issued “Authorized Generics: An Interim Report,” which presented the first set of results from a study conducted to examine the short-term and long-term effects of “authorized generics” on competition in the prescription drug marketplace. Among the preliminary findings of this report were the following:

• Revenues of a first-filer generic firm during the 180-day exclusivity period drop substantially after an authorized generic enters the market, with average declines ranging from 47% to 51%. The revenue effect for generic firms is much greater than the price decline for consumers mainly because the authorized generic represents a very close substitute for the conventional generic and typically gains significant market share at its expense;
• To prevent this loss of revenue, generic firms may be willing to delay entry in return for a brand firm’s agreement not to launch an authorized generic during the 180-day marketing exclusivity period;
• Between fiscal years 2004-08, about 25% of the final patent settlements reviewed by the FTC contained provisions related to authorized generics; and
• During the same period, 76 final patent settlements were with first-filer generic firms. About 25% of those settlements involved an agreement by the brand not to launch an authorized generic to compete against the first filer, combined with an agreement by the first filer to defer market entry past the settlement date by an average of 34.7 months.

The comprehensive report on this issue is expected to be released in the next few months.