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Executive Summary

Mylan Labs' acquisition of Dow B. Hickam provides an opportunity to boost the company's nascent brandname drug business via a small but aggressive detail force while diminishing the firm's reliance on generics in the era of slowed-down ANDA approvals. Mylan announced June 27 that it has a definitive agreement to acquire Dow B. Hickam, the Sugar Land, Texas manufacturer and marketer of specialty pharmaceutical products for hospitals, nursing homes and long-term care facilities. Hickam will be operated as a wholly-owned subsidiary of Mylan with its current management intact. Mylan expects to complete the merger before the end of the year. The addition of Hickam is the latest step in Mylan's evolution from a generic drug distributor to a more diversified brandname company. Other important steps in that evolution were made in 1984 when Mylan licensed its first branded generic, the antihypertensive/diuretic Maxzide, to Lederle, and progressed with the company's 50% ownership of the Parkinson's drug Eldepryl marketer Somerset Pharmaceuticals. Mylan moved last September to expand Eldepryl's marketing strength via a copromotion agreement with Sandoz. Hickam's product line complements the targeted market for many of Mylan's generics as well as for Maxzide and Eldepryl. The company's real strength lies in its detail force of 70 sales reps. Mylan, which for some time has been seeking a strong sales force as one avenue for growth, characterized the Hickam reps as "a highly skilled, aggressive marketing force." The Hickam reps have have been successful in detailing older products to the specialized U.S. longterm care markets, in which the company claims it has access to 97% of the hospital and nursing home beds. Hickam's products include Sorbsan calcium alginate topical wound dressing, Granulex (trypsin) aerosol drug for treating bedsores and Unifiber natural dietary fiber supplement. Hickam recently made the news with its acquisition of Sterling's Winthrop Labs wound care business, which the company heralded as a "major step forward" in its "strategic growth plan" ("The Pink Sheet" April 8, T&G-11). The Winthrop wound care line, including the Biobrane II temporary wound dressing device and the topical burn cream Sulfamylon (mafenide acetate), generates sales of approximately $ 5 mil. In 1990, Hickam reported sales of $ 13.3 mil. and net income of $ 415,000. However, this year, the company's bottom line has been stressed. In its 1990 annual report, Hickam President and CEO Dow B. Hickam stated that "our primary challenge" in 1991 "will be to return the company to satisfactory levels of profitability." He noted that the effect on earnings of the rebates mandated by the Medicaid Prudent Pharmaceutical Purchasing Act "could be significant." Under the terms of the acquisition agreement, Mylan will exchange .85524 shares of its common stock for each one of the over 2.2 mil. shares of Hickam common stock and for the equity value of issued options and warrants. Additionally, Mylan will redeem Hickam's 916 shares of preferred stock for over $ 1 mil. The exchange for approximately 1.8 mil. shares of Mylan stock values the deal at around $ 50 mil. based on Mylan's closing stock price of 25-3/4 on the day prior to the merger announcement. The acquisition of Hickam also may be a preparatory step by Mylan in anticipation of reacquiring the license to Maxzide and further bolstering the sales potential for Eldepryl. Mylan sued Lederle last November charging the American Cyanamid subsidiary with not exercising its "best efforts" to promote Maxzide and of repeatedly "bundling" Maxzide with Lederle generics in promotions to the managed care market. In addition to monetary redress totaling more than $ 1.6 bil., Mylan is seeking to retrieve Maxzide's license, trademarks and trade dress ("The Pink Sheet" Dec. 10, T&G-2). Mylan Chairman Roy McKnight in April expressed some dissatisfaction with the Sandoz copromotion effort, charging that Sandoz' sales force had "backed off" on promoting the drug after strong initial efforts that had resulted in lower than forecast sales for the drug ("The Pink Sheet" April 22, p. 7). However, McKnight stressed that the situation would change quickly with a renewed physician education program by Sandoz.

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