Mylan Laboratories Inc.

Mylan Laboratories Inc.

1030 Century Building
130 Seventh Street
Pittsburgh, Pennsylvania 15222
U.S.A.
(412) 232-0100
Fax: (412) 232-0123

Public Company
Incorporated: 1961 as Milan Laboratories Inc.
Employees: 1,300
Sales: $392.8 million (1996)
Stock Exchanges: New York
SICs: 2834 Pharmaceutical Preparations

One of the leading pharmaceutical manufacturers in the United States, Mylan Laboratories Inc. produces and markets numerous generic and proprietary drugs. Mylan made its mark in the pharmaceutical industry as a manufacturer of generic drugs, or those pharmaceutical products no longer protected by patents. From the manufacture of generic drugs, the company branched out into other areas of the pharmaceutical industry, introducing its first proprietary drug, Maxzide, in 1984 and a half-strength version in 1988. Acquisitions completed during the late 1980s and into the 1990s brought Mylan into other market niches, including anti-Parkinson’s disease medications and transdermal drug delivery systems. During the late 1990s, the company’s operations included high-technology research and development laboratories, manufacturing and packaging facilities in West Virginia, Puerto Rico, Texas, Vermont, Illinois, and Florida, and distribution centers in North Carolina and Nevada.

Origins

Industry stalwart Mylan began business as a small, privately-owned company in 1961. The company later earned accolades for its manufacturing speed and efficiency—two cornerstones of success in the generic drug business—but it began as an upstart distributor of Pharmaceuticals based in the sleepy confines of White Sulphur Springs, West Virginia. Initially, the company operated under the name Milan, drawing its corporate title from the name of one of the company’s two founders, Milan Puskar, who directed the company’s fortunes during two distinct eras in its history. Puskar, in his mid-20s when he founded Milan, scored his greatest success as a manufacturer of drugs but early on he subsisted exclusively by reselling drugs manufactured by other companies to pharmacies and doctors. The foray into manufacturing occurred four years after the company began business, and after two relocations of the company’s headquarters. In 1963, Puskar moved his operations to Princeton, West Virginia, and then moved again two years later, settling in Morgantown, West Virginia. The move to Morgantown in 1965 occurred the same year the company began producing vitamins, the first product manufactured under the Milan banner.

Manufacturing in Morgantown picked up speed quickly following the company’s debut as a vitamin producer. In 1966, Milan received approval from the Food and Drug Administration (FDA) to start manufacturing Penicillin G tablets, the first in a long line of generic drugs the company would produce. Two years later, production activity in Morgantown was expanded when the FDA gave Milan the nod to produce the antibiotic Tetracycline. By the following year—in 1969— Parke-Davis had begun purchasing the company’s manufactured drugs, becoming the first major drug company signed up as a Milan customer. Over the course of the next several years the number of major drug companies who purchased Milan’s products under private label increased, as did the number of FDA-approved drugs Milan manufactured, such as the addition of Erythromycin in 1971 and Ampicillin in 1973. What looked good on the outside, however, was not necessarily positive in Morgantown. Milan’s roster of major customers was growing and the number of approved drugs manufactured by the company was increasing, but Puskar was unhappy, frustrated by the direction the company was taking. In 1972, after a management dispute, Puskar left the company he had founded 11 years earlier, ending the first chapter in the company’s history and marking the beginning of a near-disastrous period for the West Virginia pharmaceutical concern.

After Puskar’s exit, Milan changed its name to Mylan and converted to public ownership, debuting on the OTC (over-the-counter) market in February 1973. The years immediately following Puskar’s resignation were difficult ones for the small but rapidly growing pharmaceutical manufacturer, years that evinced Puskar’s perception that the company was headed in the wrong direction. When Roy McKnight, president of a manufacturer’s representative company, joined Mylan’s board of directors in late 1975 he discovered precisely how errant the company’s course had been, portending Mylan “was facing imminent bankruptcy.” Despite the company’s early success in gaining FDA approval to manufacture drugs and the growing number of major drug firms who had signed on as customers, Mylan was in dire need of help. Inventories were overstated by $2 million, more than $400,000 was owed in back taxes, 320 production workers were on strike, and the company had a negative net worth of $900,000. The situation was grave, but McKnight, who had no previous experience in the drug industry prior to joining Mylan’s board, could not muster sufficient support in finding a solution to the company’s problems. Discouraged, he wrested control of the company, naming himself chairman and chief executive officer, and fired Mylan’s president. For a replacement to the company’s presidential post, McKnight chose Puskar, reinstating the company’s founder to his creation.

NewManagement in 1976

McKnight and Puskar took the helm in early 1976 and immediately began to effect sweeping changes, resolving to concentrate on the manufacture of generic drugs. McKnight persuaded Mylan’s bankers to extend additional credit to the company, trimmed the company’s workforce by one-third, and spearheaded more aggressive marketing campaigns, vowing at the same time to discontinue the production of any drug that was unprofitable. One year later, the measures enacted by McKnight had proven effective. By 1977, Mylan was once again a profitable company.

During the years following Puskar’s return and McKnight’s arrival, Mylan recorded steady and encouraging growth, its operations leaner and more cost-efficient as a result of the lessons learned from the mistakes during the first half of the 1970s. The company used only four salespeople to sell commodity generic pharmaceuticals under their chemical names, marketing the drugs to bulk buyers such as drugstore chains, mail-order houses, and distributors. The company also moved heavily into producing and selling branded generics that were no longer covered by patents. In the business of producing such generic drugs, foresight, manufacturing speed, and manufacturing efficiency were key attributes for success, attributes Mylan exuded as it developed from a small pharmaceutical concern into one of the nation’s dominant forces. Being the first to market a branded drug once its patent expired meant exponentially higher profits for a generic drug manufacturer. Once a patent expired, the generic equivalent was generally introduced at 70 percent of the price of the brand. As more and more generic manufacturers entered the fray, typically marketing as many as twelve generic equivalents for each branded drug, the price for the generics dropped, eventually bottoming out at 10 percent of the brand price. Consequently, the first to market a generic response earned the highest profits, while the latecomers earned only a fraction of the original yield for their efforts. Mylan, with its operating costs down and its efforts sharply focused on being the first to market, began to flourish in the race for supremacy in the discount market, ascending to the top of the industry in less than a decade.

First Proprietary Drug in 1984

Annual sales by the beginning of the 1980s eclipsed $30 million, and Mylan began to steel itself for its entry into a new, potentially lucrative area of the multibillion-dollar pharmaceutical industry. Development plans were underway by the beginning of the 1980s for My Ian’s first proprietary drug, its first pharmaceutical product developed, manufactured, and marketed in-house. In 1984, after five years of clinical tests and a $5 million investment, Mylan introduced an anti-hypertensive called Maxzide, an achievement McKnight hailed as the “single most important event in Mylan’s history.” Lederle Laboratories was licensed to distribute the drug, which was expected to generate $100 million in sales by 1988, and tests were immediately underway to introduce another version of Maxzide. In 1988, after three years of clinical tests, the FDA approved half-strength Maxzide-25, giving the company another powerful revenue-generating engine.

As these first steps into proprietary drug production were being made, progress was being achieved on other fronts, as Mylan reigned as the leading independent drug manufacturer in the United States, a number one position first achieved in 1985. Mylan’s growing presence as a manufacturer necessitated the development of additional manufacturing facilities to complement its sole plant in Morgantown, which the company accomplished in 1987 when construction was completed for a new factory in Caguas, Puerto Rico. The company’s first distribution center opened the following year in Greensboro, North Carolina.

Company Perspectives:

Research is the life-blood of any company. It is the catalyst by which a company grows and lack of it can cause stagnation or even failure. Mylan is a research-driven company dedicated to excellence. As we continue our evolution into a fully integrated pharmaceutical company, we have targeted compounds to meet unmet needs ... we are aggressively developing products that will effectively treat serious disorders and diseases that are not addressed by pharmaceuticals presently on the market. Our R&D budget is not based on a percentage of sales but on accomplishing goals. We do not waste money, but we spend whatever is necessary to do it right.. . to meet our objectives of focusing upon therapies that make a difference in terms of human and economic value. We believe that by advancing science, we can enhance life!

As the 1980s drew to a close, McKnight and Puskar began an acquisition campaign aimed at developing a multifaceted Mylan with a greater, more well-rounded presence in the pharmaceutical industry. Much of the work toward this goal took place during the 1990s, when annual sales grew robustly, but before the 1980s were through Mylan completed a pivotal deal. In June 1989, the company acquired a 50 percent stake in Somerset Pharmaceuticals, Incorporated, the same month Somerset secured FDA approval to market a new medication for the treatment of Parkinson’s disease called Eldepryl. Mylan’s stock during the year provided an indication of the value of the acquisition, soaring 173 percent. Two years later, when annual sales topped the $100 million mark during the company’s 30th anniversary year, Mylan completed another acquisition, merging with Sugar Land, Texas-based Dow B. Hickam Pharmaceuticals. A high-quality branded pharmaceutical company, Dow B. Hickam specialized in the manufacturing and marketing of wound and burn care pharmaceutical products, which added another quill to Mylan’s quiver. The push to further broaden Mylan’s arsenal of pharmaceutical goods continued in early 1993 when the company acquired Bertek, Incorporated, a manufacturer and innovator of transder-mal (patch) drug delivery systems. The addition of Bertek gave Mylan five worldwide and seven domestic patents for transder-mal drug delivery technology, the applications for which were expanding during the 1990s.

In late 1993, nine months after the Bertek acquisition was completed, Mylan employees were shocked to learn of the death of McKnight, who died suddenly of a heart attack on November 6th. Three days later, Puskar was named chairman and chief executive officer, assuming the posts vacated by McKnight and now wielding as much influence over the company as he had during its inaugural decade.

1990s Diversification Yields Growth

As the acquisitions were being completed during the early 1990s, annual sales rose sharply, leading to growth that quickly elevated Mylan’s stature within the pharmaceutical industry. From $104 million in 1991, sales shot to $132 million in 1992, $212 million in 1993, and $252 million in 1994. Aside from broadening and deepening its involvement in the pharmaceutical industry through acquisitions, Mylan realized its animated growth by adhering to its philosophy of keeping manufacturing costs down and making sure to bring its products to market quickly. The company used just three manufacturing processes for all 79 of its pharmaceutical products, enabling it to meet any order within five days. Further, its focus on research and development of branded drugs well before their patents expired allowed the company to be the first on the market with the generic equivalent more often than not. In 1994, for instance, four of Mylan’s six generic introductions were the first to market, giving the company hefty profit totals in comparison to the amount of revenue it generated. The company’s introduction of címetidine, a generic ulcer drug, in 1994, for example, held 39 percent of the market for all new cimetidine prescriptions in 1995.

As Puskar moved ahead with the strategy developed by McKnight and himself, he further penetrated the branded drug market, opting to fill niches deemed too small by the country’s largest drug manufacturers. To give the company the manufacturing might to correspond to its growing presence, a third generic drug production facility was opened in Cidra, Puerto Rico, in late 1994, further bolstering the company’s manufacturing capabilities in one of the havens of pharmaceutical production in the world. Sales recorded their most prolific leap during the first half of the decade in 1995, catapulting from $252 million to $396 million, from which the company registered an astounding $121 million in net earnings, nearly twice the total earned the previous year. The following year—in 1996—sales dipped to $393 million, but to compensate for the depressed revenue total the company completed another acquisition, purchasing UDL Laboratories Inc., a supplier of unit dose generic Pharmaceuticals to the institutional and long-term care market.

As Mylan prepared to close out the decade and head into the 21st century, it occupied an enviable position in the pharmaceutical industry. Of all the pharmaceutical products produced by the company, 56 percent were ranked as the number one drug in their market and more than 70 percent were ranked either number one or number two. These percentage figures pointed to astute management and agile manufacturing abilities, qualities that promised to secure a leading market position in the future. The company’s dedication to maintaining its position in the pharmaceutical industry was demonstrated in late 1996 when it opened a 150,000-square-foot research facility with bed space for 104 research subjects and two large laboratories. Such investment in the development of drugs, which was based on meeting goals rather than on a percentage of sales, pointed further to Mylan’s bright prospects in the years ahead, as the company endeavored to make its future as successful as its past.

Principal Subsidiaries

Mylan Pharmaceuticals Inc.; Mylan Inc.; Dow B. Hickam Pharmaceuticals Inc.; Bertek, Inc.; UDL Laboratories Inc.; Somerset Pharmaceuticals, Inc. (50%).

Further Reading

Drahuschak, Greg, “Taking Stock: Mylan Labs Sets Pace for Local Market Index,” Pittsburgh Business Times, January 8, 1990, p. 1.

“Drugs: Here Come the Sons of Valium,” Time, September 16, 1985, p. 59.

Marano, Ray, “Roy McKnight Still Standard-Bearer for Mylan Labs,”Pittsburgh Business Times, May 10, 1993, p. 11.

“Mylan Laboratories Inc.,” Pittsburgh Business Times, March 26, 1990, p. 27.

“Mylan Laboratories Inc.,” Pittsburgh Business Times, June 28, 1993, p. 23.

Oliver, Suzanne, “Make a Good Product,” Forbes, August 14, 1995, p. 90.

Sabatini, Patricia, “Pittsburgh-Based Mylan, Heinz, Still Favorites of Investors,” Knight-Ridder/Tribune Business News, April 8, 1997, p. 4.

—Jeffrey L. Covell