Mylan Inc.’s $1.6 billion agreement to buy Strides Arcolab Ltd. (STR)’s injectable-medicine unit will help the U.S. company’s push into copies of expensive biotechnology drugs, Chief Executive Officer Heather Bresch said.
“Injectables have been high on our list, because it’s something we did not have critical mass around and we saw it as an important precursor to leverage biogenerics,” Bresch said in a telephone interview today. The agreement to buy Strides’ Agila Specialties unit will add markets and increase per-share results immediately, Mylan said in a statement yesterday.
Mylan, the second-biggest generic-drug maker, will gain Agila’s manufacturing plants that can be used to make cheaper versions of expensive biotechnology medicines including insulins and blood-boosting treatments, which U.S. lawmakers allowed as part of a 2010 law. Canonsburg, Pennsylvania-based Mylan (MYL:US) looked at other injectable-drugs companies and assets and was disappointed, Bresch said.
“A lot of these facilities out there are really old,” Bresch said. “I would say that what differentiated Agila is their state-of-the-art, high-quality facilities.”
Purchasing Agila is part of Mylan’s strategy to grow into one of the three biggest providers of injectable medicines.
“We believe that risks are well taken in that arena,” Bill Smead, chief executive officer of Seattle-based Smead Capital Management, said of Mylan’s plans. “They’re creating quite a powerhouse.” His fund owned 317,000 shares of Mylan as of December, according to filings.
Mylan shares (MYL:US) rose 3.6 percent to $29.61 at the close in New York. The company has gained 26 percent in the past 12 months. Bangalore-based Strides fell 6.9 percent to 917.25 rupees in Mumbai trading.
Off-patent, injectable medicines are in high demand because of shortages in the U.S., where the Food and Drug Administration listed more than 120 medicines with low supply as of Nov. 28. The shortages, which include the sedative injection propofol and the ovarian cancer treatment Doxil, are caused by manufacturing issues and decisions by companies to stop production of some generic therapies.
Mylan said it will finance the acquisition with an unsecured bridge loan of $1 billion and may pay Strides a further $250 million based on certain conditions.
Strides plans to distribute as much as $800 million to shareholders and also pay off debt, according to a company statement. The Bangalore-based company had debt of 11.89 billion rupees ($221 million) as of June 30, according to data compiled by Bloomberg.
Mylan already has a deal with Biocon Ltd. (BIOS) to develop generic versions of biotechnology drugs. Biocon, based in Bangalore, is India’s biggest biotechnology drugmaker. The companies have agreed to develop treatments together and split sales. The deal includes generic versions of versions of insulins made by Sanofi, Eli Lilly & Co. and Novo Nordisk A/S.
The deal for Stride’s unit will add manufacturing and technology capacity for Mylan to help manufacture the therapies because of the similarities in how biotechnology drugs and injectable medicines are made and administered.
“Having critical mass around that area goes hand-in- hand,” Bresch said.
In November, Strides received FDA approval for an oxaliplatin injection used to treat advanced cancer, which will be distributed in the U.S. by New York-based Pfizer Inc. (PFE:US) The Agila unit also has partnerships with London-based GlaxoSmithKline Plc (GSK) and Basel, Switzerland-based Novartis AG, according its website.
Agila had the highest number of injectable-medicine approvals by the FDA for generic drugs, with 32 from 2008 to 2010, compared with 23 at Hospira Inc. (HSP:US) of Lake Forest, Illinois, according to a May presentation. The company has eight manufacturing facilities in India, Brazil and Poland, according to its website.
The deal will boost Mylan’s portfolio (MYL:US) of injectable drugs from 500 to 700, with another 350 awaiting approval around the world. The company projects the generic-drug market to grow at about 13 percent a year through 2017, and the deal will give it entry into new markets including Brazil.
The drugmaker’s goal is to double in size over the next five years, Bresch said.
The deal is expected to close in the fourth quarter, the companies said.
Morgan Stanley is Mylan’s financial adviser and is providing the $1 billion loan. Milford Skadden, Arps, Slate, Meagher & Flom LLC served as legal adviser. Jefferies Group Inc. was the financial adviser to Strides Arcolab.
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