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Executive Summary

MARION MERRELL DOW PAYS ONE TIMES SALES FOR RUGBY's $280 MIL. annual sales generic drug business in a deal completed Oct. 5. MMD purchased the generic drug portion of privately held Rugby-Darby Group for "approximately $275 mil." in cash, the company said. The purchase price may change slightly pending final accounting figures. The agreement by Marion Merrell Dow to acquire Rugby was originally announced May 18 ("The Pink Sheet" May 24, p. 3). Rugby's $280 mil. in 1992 sales came from 87 mil. generic prescriptions for the approximately 2,400 SKUs distributed by the company and made it "the nation's largest generic drug company," Marion Merrell Dow said. In contrast, MMD's domestic 1992 sales of $2.2 bil. were generated from about half as many scripts (46 mil.). A comparison of the two companies' average per script sales highlights the difference between the high margin business that Marion Merrell Dow has espoused and the high-volume/low-price business of Rugby. In 1992, MMD's sales per script were $47.83 while Rugby's were $3.22. "Marion Merrell Dow is still very much in the business of providing patented, unique medications for cost-effective treatment of patients," the company said. "We see an opportunity to make these important brand name products even more attractive by offering them along with a broad line of generics from Rugby." Although the strategic importance of the Rugby purchase lies in the ability it gives MMD to offer broad packages of products to purchasers, the companies are apparently going to go slowly through the process of blending the businesses. Rugby will operate as a wholly owned subsidiary of MMD headquartered in Atlanta. Company President and Chief Operating Officer Richard Frankovic will remain as head of the 770-person generic business. Exec VP and Chief Financial Officer Edward Mehrer will add the role of chairman of Rugby. Rugby-Darby President Michael Ashkin will continue to run the Ashkin family-owned Darby Group, which consists of the veterinary, medical, dental and consumer marketing divisions of Rugby-Darby. "Customers of Marion Merrell Dow and Rugby will see no immediate changes in procedures for orders, inquiries and billing," MMD said. Marion Merrell Dow added that it does not plan any immediate shifts in manufacturing or marketing involving the two companies. Down the road, MMD said it is considering using the manufacturing capacity of Marion Merrell Dow to supply products that Rugby currently outsources. However, any move in that direction would await ANDA submissions and approvals, MMD noted. Marion Merrell Dow currently offers a generic version of its own product Cardizem through Blue Ridge Labs. Rugby's Chelsea subsidiary manufactures about 70 drug products for Rugby from its two plants in Monroe, N.C. and Bayamon, Puerto Rico. Chelsea has ANDAs pending although the company has been ineligible for approval under FDA's application integrity policy. Marion Merrell Dow is not disclosing earnings for Chelsea, citing the difficulties of carving out the contributions from the generic sector to the overall performance of privately held Rugby- Darby. Ashkin, however, has been quoted in the New York press as saying that compliance/fraud problems at Chelsea adversely affected the profits of his company.

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