The Hindu Business Line : Docpharma sale: Is the move driven by Mylan?

Both strategic initiatives and financial sense appear to be behind the announcement by Mylan-controlled domestic pharma company Matrix Laboratories to sell-off its subsidiary, Docpharma. Matrix’s Board of Directors has authorised its management to pursue strategic alternatives, including the divestiture of Docpharma.

Matrix had acquired Docpharma in June 2005 for Rs 1,144 crore. A year after, US-based generic company Mylan agreed to acquire around 72 per cent of Matrix Labs. Even as Docpharma, which manufactures generic pharmaceuticals for Benelux countries with an emphasis on the hospitals business, was being integrated, Mylan went ahead to acquire the generics business of Merck for $6.7 billion. Together Mylan-Merck generics had attained considerable size and market share and were looking at leveraging gains from Matrix Labs, a predominantly bulk drug generics supplier. Since then, Matrix realigned its strategic focus to supply APIs to Mylan-Merck, casting doubts on the role of Docpharma.

Financial sense

From May 2007 onwards, Matrix’ consolidated earnings picture took a hit as it started facing significant regulatory and competitive pressure on pricing and delays in new launches in the Belgian market, where it had acquired Docpharma.

While pricing came under pressure, the lack of any new product launches and upfront costs of penetrating new geographies also hurt profitability (net profit margins came to 2 per cent from 6 per cent in first half of 2006-07).

Mylan’s plans for Docpharma could have included distribution of products and foray into multiple new EU markets. But Merck’s generics business gave it a much better vehicle. Matrix’s first half earnings growth was muted due to more than 30 per cent de-growth in the hospital supplies business of Docpharma.

Expense pullback

The proposed sale of Docpharma should also be seen in light of Mylan’s own problems. Mylan by itself has been grappling with expenses related to its Merck acquisition, with the most recent quarter showing a $1.38 billion loss.

Mylan has detailed plans to shed 720 jobs in the next three years, consolidate research and other operations as it restructures all its businesses.

Matrix is currently examining several strategic alternatives for Docpharma, which could include divestiture; more on the same can be expected soon.

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