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Mylan Laboratories Inc.

Mylan Laboratories Inc.

1500 Corporate Drive, Suite 400
Canonsburg, Pennsylvania 15317-8580
U.S.A.
Telephone: (724) 514-1800
Fax: (724) 514-1870
Web site: http://www.mylan.com

Public Company
Incorporated:
1961 as Milan Laboratories Inc.
Employees: 2,450
Sales: $1.27 billion (2002)
Stock Exchanges: New York
Ticker Symbol: MYL
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Mylan Laboratories Inc. is one of the leading manufacturers of generic drugs in the United States. The firm produces and markets numerous generic and proprietary (brand-name) drugs, with the sale of generics providing 80 percent of total revenues. Mylan's generic operations are conducted through two principal subsidiaries, Mylan Pharmaceuticals Inc. and UDL Laboratories, Inc.; while the company's branded segment operates through Bertek Pharmaceuticals Inc. and Mylan Technologies Inc., with Bertek focusing on three therapeutic areas: dermatology, neurology, and cardiology. In addition, Mylan is involved in a 5050 joint venture with Watson Pharmaceuticals, Inc. called Somerset Pharmaceuticals, Inc., whose single commercial product is Eldepryl, a treatment for Parkinson's disease. 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 brand-name pharmaceuticals, introducing its first proprietary drug, Maxzide, in 1984. Acquisitions completed from the late 1980s through the mid-1990s brought Mylan into other market niches, including anti-Parkinson's disease medications and transdermal drug delivery systems. During the early 2000s, the company's operations included research and development laboratories and manufacturing facilities in West Virginia, Puerto Rico, Texas, Vermont, and Illinois, and a distribution center in North Carolina.

Origins

Industry stalwart Mylan began business as a small, privately owned company in 1961. The company later earned accolades for its manufacturing speed and efficiencytwo cornerstones of success in the generic drug businessbut 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 Pharmaceuticals, Inc., 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 along with Don Panoz, an army buddy, 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 yearin 1969Parke-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 cofounded 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 Laboratories Inc. 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.

New Management 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. Mylan's stock began trading on NASDAQ in 1978.

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 12 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 Mylan'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 antihypertensive 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. The following April the company's stock moved to the more prestigious New York Stock Exchange. 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:

By focusing on key principles of quality and integrity, Mylan has established a position of leadership in the pharmaceutical industry; in fact, today, Mylan is the #1 most widely dispensed line of pharmaceuticals in America. The company's success can be attributed to outstanding management, dedicated employees, and upholding its founding corporate motto: "We either do it right or we don't do it at all."

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, Inc., the same month Somerset secured FDA approval to market a new medication for the treatment of Parkinson's disease called Eldepryl. Somerset was a joint venture with Bolar Pharmaceutical Co. Inc. (which changed its name to Circa Pharmaceuticals Inc. in 1993 and then was acquired by Watson Pharmaceuticals in 1995). Mylan's stock during the year provided an indication of the value of this 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, Texasbased 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 St. Albans, Vermontbased Bertek, Incorporated, a manufacturer and innovator of transdermal (patch) drug delivery systems, for $39 million. The addition of Bertek gave Mylan five worldwide and seven domestic patents for transdermal drug delivery technology, the applications for which were expanding during the 1990s.

Meantime, Puskar and McKnight went public in 1989 with evidence of improprieties at the FDA's Generic Drug Division. This led to investigations by the Oversight and Investigations Committee of the U.S. House of Representatives, a U.S. Attorney, the U.S. Department of Health and Human Services, and the FDA itself. These probes found that some of Mylan's competitors had been involved in bribing and making payoffs to FDA employees, as well as faking test results. A number of generic drugs were pulled off the market by these companies as a result of the investigations and the resulting judicial action.

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 6. Three days later, Puskar was named chairman and CEO, assuming the posts vacated by McKnight and now wielding as much influence over the company as he had during its inaugural decade.

Growth Through Diversification in the 1990s

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 a philosophy of keeping manufacturing costs down and making sure to bring 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 often allowed the company to be the first on the market with the generic equivalent. 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 cimetidine, a generic ulcer drug, in 1994, for example, held 39 percent of the market for all new cimetidine prescriptions in 1995.

Key Dates:

1961:
Milan Pharmaceuticals, Inc. is founded as a distributor of drugs.
1965:
Vitamins are the first product manufactured under the Milan banner.
1969:
Parke-Davis becomes the first major drug firm to begin purchasing the company's manufactured drugs.
1972:
Company cofounder Milan Puskar leaves the firm after a management dispute; company soon changes its name to Mylan Laboratories Inc.
1973:
Mylan goes public on the OTC market.
1976:
Mylan is beset by problems and verging on bankruptcy; Roy McKnight wrests control of the company, names himself chairman and CEO, and brings Puskar back as president; new leaders engineer a turnaround, focusing Mylan on the manufacture of generic drugs.
1984:
Company begins marketing its first proprietary drug, Maxzide, an antihypertensive.
1987:
Mylan opens a new factory in Caguas, Puerto Rico.
1989:
Company acquires 50 percent stake in Somerset Pharmaceuticals, Inc.; Mylan helps expose corruption in the generic drug industry.
1991:
Mylan merges with Dow B. Hickam Pharmaceuticals.
1993:
Bertek, Incorporated is acquired; McKnight dies suddenly, and Puskar is named chairman and CEO.
1996:
Mylan acquires UDL Laboratories, Inc.; Bertek Pharmaceuticals Inc. is established as Mylan's main branded pharmaceuticals subsidiary.
1998:
Penederm Inc. is acquired and later becomes Bertek's Dermatology Division; the Federal Trade Commission files suit against Mylan, accusing the firm of stifling competitors in connection with two anti-anxiety drugs.
2000:
Mylan agrees to settle all suits brought in connection with the anticompetitive charges, taking a $147 million charge to cover the cost of the settlements.

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 catapulted in 1995, from $252 million to $396 million; net earnings also leaped, to $121 million, nearly twice the total of the previous year. The following yearin 1996sales dipped to $393 million because of heightened generic drug competition, 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, for about $47.5 million in stock.

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.

Continuing its drive to increase participation in the branded drug segment, which offered higher profits than the generic sector, Mylan in August 1996 formed Bertek Pharmaceuticals Inc. as a subsidiary focusing on the development, manufacturing, and marketing of branded pharmaceuticals. This subsidiary combined the operations of Dow B. Hickam and the previous incarnation of Bertek. The next step in this effort came in October 1998, when Mylan purchased Penederm Inc., maker of branded dermatological creams and products, for about $200 million. Penederm was transformed into Bertek's Dermatology Division in August 1999.

Litigation at Center Stage: Late 1990s

Mylan became embroiled in litigation in the late 1990s over allegations that the company had attempted to corner the market on the raw materials used to make two anti-anxiety drugs, lorazepam and clorazepate. According to the Federal Trade Commission (FTC), which filed a suit against Mylan in December 1998, Mylan jacked up its prices on these drugs more than 3,000 percent after signing deals with its suppliers that allegedly locked out the firm's competitors. While the price increases certainly did take place, Mylan vehemently denied the other allegations and contended that it had done nothing wrong. The case was a major distraction for the company, and in the end, in July 2000, Mylan agreed to settle federal, state, and private lawsuits that were brought in connection with this matter. For the FTC, the $100 million that Mylan was required to pay the agency and 33 states was the largest monetary settlement in its history. Mylan, meanwhile, took a $147 million charge during the fiscal year ending in March 2001 to cover the payments that settled the various suits. It also agreed not to sign any more exclusive-supplier agreements. As a result of the charge, the firm posted net income that year of just $37.1 million, a 76 percent decline from the prior year's record total of $154.2 million. Revenues for 2001 reached a record $846.7 million.

Mylan was also involved in a number of other lawsuits during this period and into the early 2000s. Most of the suits involved other pharmaceutical companies, specifically brand-name drug firms who were increasingly filing suits and using other delaying tactics in order to maintain their rights to the exclusive marketing of their proprietary drugs for as long as possible. In one of the most noteworthy such cases, Mylan sued both Bristol-Myers Squibb Company and the FDA in late 2000 in its effort to begin selling a generic version of BuSpar, an anti-anxiety drug that had sales in excess of $600 million in 1999. In March 2001 a federal judge ruled in Mylan's favor, and the company immediately began selling the generic, buspirone, achieving $34 million in sales in just the first quarter on the market. The revenue boost that followed the introduction of buspirone helped push Mylan's revenues past the $1 billion mark during fiscal 2002. Mylan later received $35 million in damages from Bristol-Myers as part of the settlement of lawsuits that had been brought against that company because of the tactics it had used to try to keep the generic version off the market.

There were developments outside the courtroom during the early 2000s as well. In March 2001 Bertek Pharmaceuticals moved into brand-new headquarters in Research Triangle Park, North Carolina. Mylan itself relocated as well, shifting outside of Pittsburgh into that city's suburbs, specifically Canonsburg. In between, in September 2002, the company appointed a new CEO, Robert J. Coury. The new chief had been a strategic consultant to Mylan since 1995 and joined the company's board in early 2002, serving as vice-chairman. Puskar remained in his post as chairman. Mylan also continued to gain FDA approval for new products, including generic versions of such blockbuster drugs as the antidepressant Prozac (in 2002) and the gastrointestinal acid blocker Prilosec (2003). With patent protection on large numbers of top-selling branded drugs expected to expire over the next several years, and its proven ability to be the first or among the first to market with generic versions, Mylan Laboratories was positioned to be one of the main beneficiaries of this trend. One cloud on the company's horizon, however, was yet another lawsuit. In September 2003 the attorney general of Massachusetts filed suit against Mylan and 12 other pharmaceutical companies, accusing them of over-charging Medicaid plans as part of the practices they used to price generic drugs.

Principal Subsidiaries

Mylan Pharmaceuticals Inc.; Bertek Pharmaceuticals Inc.; UDL Laboratories, Inc.; Mylan Technologies Inc.

Principal Competitors

Teva Pharmaceutical Industries Limited; Watson Pharmaceuticals, Inc.; IVAX Corporation; Barr Laboratories, Inc.; Alpharma Inc.; Geneva Pharmaceuticals, Inc.

Further Reading

Angrist, Stanley W., "The Good Samaritans," Forbes, December 6, 1982, pp. 122+.

Benson, Betsy, "Mylan Sees Cure in Generic Scandal Fallout," Pittsburgh Business Times, October 9, 1989, p. 1.

"CEO Interview: Gary Sphar, Mylan Laboratories," Wall Street Transcript, August 26, 2002.

Davis, Christopher, "Mylan Seeks Replacements from Outside," Pittsburgh Business Times, June 22, 2001, p. 3.

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.

Freudenheim, Milt, "Exposing the F.D.A.: Tiny Mylan Labs Hired a Private Eye and Shook Up the Generic Drug Industry," New York Times, September 10, 1989, p. F1.

Gaynor, Pamela, " 'I'm Not a John Wayne': New Mylan CEO Views Role As Building on Drug Maker's Strengths, Not Stirring Things Up," Pittsburgh Post-Gazette, December 3, 2002, p. C11.

, "Mylan Builds $600 Million 'Kitty': Generic Drug Maker Looks for Acquisitions," Pittsburgh Post-Gazette, March 6, 2002, p. C1.

Lindeman, Teresa F., "Generic Anxiety: Fierce Competition Forced the Price of Lorazepam So Low It Cleared the Field for Mylan," Pittsburgh Post-Gazette, February 28, 1999, p. F1.

, "Mylan to Pay $147 Million to Settle Suits on Price Hikes," Pittsburgh Post-Gazette, July 13, 2000, p. A1.

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

"Mylan Is Glad It Opened This Can of Worms," Business Week, September 18, 1989, pp. 30+.

Novack, Janet, "Drug Abuse," Forbes, June 26, 1989, pp. 42+.

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

Perine, Keith, "Mylan Labs May Face Antitrust Charges over Price Increases on Generic Drugs," Wall Street Journal, December 7, 1998, p. B4.

Schroeder, Michael, "Mylan to Pay $100 Million to Settle Price-Fix Case," Wall Street Journal, July 13, 2000, p. A4.

Stricharchuk, Gregory, "Bad Medicine: Drug Firm's Probe of the FDA Threatens Major Agency Scandal," Wall Street Journal, June 9, 1989, pp. A1+.

Jeffrey L. Covell

update: David E. Salamie

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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-Parkinsons disease medications and transdermal drug delivery systems. During the late 1990s, the companys 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 efficiencytwo cornerstones of success in the generic drug businessbut 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 companys two founders, Milan Puskar, who directed the companys 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 companys 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 companys 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 yearin 1969 Parke-Davis had begun purchasing the companys 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 Milans 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. Milans 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 companys history and marking the beginning of a near-disastrous period for the West Virginia pharmaceutical concern.

After Puskars 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 Puskars resignation were difficult ones for the small but rapidly growing pharmaceutical manufacturer, years that evinced Puskars perception that the company was headed in the wrong direction. When Roy McKnight, president of a manufacturers representative company, joined Mylans board of directors in late 1975 he discovered precisely how errant the companys course had been, portending Mylan was facing imminent bankruptcy. Despite the companys 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 Mylans board, could not muster sufficient support in finding a solution to the companys problems. Discouraged, he wrested control of the company, naming himself chairman and chief executive officer, and fired Mylans president. For a replacement to the companys presidential post, McKnight chose Puskar, reinstating the companys 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 Mylans bankers to extend additional credit to the company, trimmed the companys 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 Puskars return and McKnights 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 nations 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 Ians 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 Mylans 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. Mylans 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 companys 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 Parkinsons disease called Eldepryl. Mylans 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 companys 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 Mylans quiver. The push to further broaden Mylans 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 Mylans 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 Mylans six generic introductions were the first to market, giving the company hefty profit totals in comparison to the amount of revenue it generated. The companys 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 countrys 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 companys 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 yearin 1996sales 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 companys 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 Mylans 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

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