The coming inspections owe much to the 2008 heparin scandal, in which Chinese suppliers knowingly adulterated ingredients in the blood-thinning drug. They also reflect the tireless efforts of Heather Bresch, a young former secretary from West Virginia who became CEO of generic drug-maker Mylan (ticker: MYL) in January 2012. Due to her determination, fearlessness, and prodigious work ethic, Bresch accomplished what even the president of the United States has a tough time doing: getting a law passed.
The so-called Generic Drug User Fee Act of 2012 was passed last year as part of a legislative overhaul of the FDA. It will level the playing field for all drug makers, enhance the attraction of manufacturing in the U.S., and raise costs for overseas factories that want to sell pharmaceutical products here, including many Mylan rivals. "Keeping a factory compliant with good manufacturing practices costs 25% more," says Bresch, who notes that Pittsburgh-based Mylan "has been running this way all along."
A reputation for ethics and excellence will stand Mylan in good stead as it expands around the world, where aging populations need affordable drugs. "That adds up to a double-digit growth rate for a public company over the next five years, which is pretty attractive," Bresch says.
Then again, Mylan hasn't been coasting. Earnings rose more than 25% last year, to $2.59 a share, and the shares are up 38%, to $29.61, since Bresch took charge. The company has said it intends to earn $6 a share by 2018.
THE CEO OF MYLAN has honey-colored hair and cuts a trim figure in an eyelet-edged dress. At 43, she is one of the youngest CEOs of a large American corporation—in this case, one with a $12 billion market capitalization and more than $7 billion in annual sales. Her manner is unguarded and she speaks with a disarming twang, a legacy, perhaps, of her upbringing in West Virginia, where members of her large Italian-American family once made their living mining coal and running small businesses.
Bresch is as persuasive as a politician, a career that also runs in the family. Her father, Joe Manchin, is the former governor of West Virginia, and now the state's junior senator in Washington, D.C. Years ago, as a state senator, he ran into Mylan's co-founder, Milan Puskar, at a West Virginia University basketball game, and told him Bresch was job-hunting. Puskar gave her a job, in the basement of Mylan's Morgantown, W.Va., factory, typing labels for the company's quality-assurance program.
She didn't stay in the basement for long. Bresch soon was promoted to the business-development office at Mylan. By 2002, she was director of government relations, a key role at a company in a heavily regulated industry. She then moved on to spokeswoman, head of strategic development, and chief operating officer, and began pushing for acquisitions that would triple Mylan's size.
GENERIC-DRUG MANUFACTURERS wage hand-to-hand combat over each patent expiration. The industry succeeded by incentivizing distributors, but bitter competition put a strain on profit margins. Generics already accounted for two-thirds of U.S. drug sales in the mid-2000s, and competition was coming from Indian manufacturers such as Ranbaxy Laboratories (now a unit of Japan's Daiichi Sankyo (4568.Japan), and Dr. Reddy's Laboratories (RDY). Mylan needed to get bigger.
In 2006, Mylan bought India's Matrix Laboratories, a maker of active ingredients and HIV treatments. The next year, Germany's Merck (MRK.Germany) decided to sell its generics division. All the big pharma companies kicked the tires until, out of nowhere, Mylan bid $6.7 billion in a deal that would make it the world's No. 3 generics company, after Teva Pharmaceutical Industries (TEVA) and Sandoz, which is owned by Novartis (NVS). But Mylan was paying more than its own market value for a company twice as large, and its shares promptly collapsed.
The deal swelled Mylan's debt load to $8 billion, but also afforded Bresch an opportunity to showcase her business acumen. All of Merck's branded and generic products were intertwined, and disentangling them would be difficult. Mylan's then-CEO, Robert Coury, hired Boston Consulting Group to advise on the project, and put Bresch in charge of the integration. She introduced a system to track every aspect of the process, utilizing red, yellow, and green lights to denote progress.
"We broke the record," says Coury. "She shone and delivered, saving the company tons of money. At first we told Wall Street we'd deliver $150 million of [cost-saving] synergies. We stopped counting at $500 million. We couldn't have hit it had it not been for [Bresch's] complex and disciplined model."
Bresch is known for making rapid decisions. "She works 100 times harder than the person next to her," Coury says.
Not everything went smoothly in these years. In 2008, following a newspaper investigation, Bresch's alma mater, West Virginia University, found that she hadn't fulfilled all academic requirements for an executive MBA degree listed on her resume. She claimed at the time that the university had allowed her to substitute fieldwork for academic experience. The school subsequently granted her the degree after changing various "incompletes" to grades, but the president and several other administrators were forced out amid charges of caving to political pressure. Later, West Virginia revoked the degree, and Bresch didn't challenge it. "It's a no-win for me to comment about this," she says.
Despite the contretemps, Bresch was named president of Mylan in 2009, and became CEO in 2012 when Coury stepped aside. Just 52, he has stayed on as executive chairman, and is heavily involved in corporate strategy.
IN THE MID-2000S, Bresch began to tackle the issue of regulatory oversight, which would make her famous. "I wasn't aware that there were two different standards for products sold in the U.S.," she says. "If you were a manufacturer in the U.S., you were subjected to a GMP [good manufacturing practice] inspection once every two years to get a clean bill of health."
But the law was silent on manufacturing elsewhere. "It took 10, 12, 13 years, or perhaps never, for a [non-U.S.] facility to be inspected that was selling product in the U.S.," she says. Bresch realized that manufacturers were exposing themselves to potentially huge liabilities.
The heparin scandal showed how complex the global supply chain had become. Yet, the FDA had no current database of foreign factories, and when the financial crisis hit, it had insufficient funding. Regulators began banging the drum for generic-drug manufacturers to pay user fees for the FDA's services, just as branded drug makers did. And Bresch began agitating for a quid pro quo for the generics industry. She thought the industry ought to agree to user fees, but demand that the funds be used to boost the agency's authority overseas.
Although the next vote to reauthorize prescription-drug fees was scheduled for late 2012, some two years hence, Bresch felt the need to act quickly. "My leadership style is that nothing gets better with age," she says.
First, she commissioned a white paper detailing that, even as foreign facilities grew by 185% from 2001 to 2008, the FDA inspected just 8% a year. In September 2010 she attended an FDA open forum on user fees, and asked the crowd, "Do you believe every product you give your children should be held to the same standard if it wasn't made in the United States?"
A few months later, she spoke at a Pew Research Center conference about the heparin scandal. "That was the catalyst for action on Capitol Hill," says Allan Coukell, a pharmacist who also directed Pew's medical-safety division.
Bresch sent her chief of staff, Marcie McClintic Coates, to negotiate with the FDA about fees, giving her this advice: "The hardest-working person wins. Period. You need to outwork every FDA lawyer, every pharma lawyer, bury them with your work ethic, because if you know what you are doing and speak intelligently, you win."
Coates figures she spent 140 hours just at the negotiating table. Key to her victory were admissions like that of FDA Commissioner Peggy Hamburg that the agency hadn't inspected some sites in 13 years. The FDA declined to comment.
BRESCH MADE HUNDREDS of visits to Capitol Hill, wheedling senators to support the Generic Drug User Fee Act on patriotic grounds. "You're letting all my competitors, paying half the tax rate of Mylan, come into our country without the infrastructure or spending…to make sure there's quality medicine," she told them.
She worked both sides of the aisle, paying countless visits to Rep. John Dingell, the powerful Democrat who headed the Energy and Commerce Committee. "She is one of the smartest people I've ever dealt with," Dingell says. "She did a super, honest, and honorable job."
Adds Sen. Manchin, "All these senators were flabbergasted when they found out she was my daughter. Of course, John Dingell wanted to adopt her."
On July 9, 2012, President Obama signed the bill into law. The New York Times singled out Bresch for credit, and Esquire magazine dubbed her one of its "Americans of the Year."
"I think I was able to pull every ounce of the fabric of who I am and what's made me, from growing up in a political family to policy being in my blood, to my curiosity about wanting to figure out a problem," Bresch says.
Now it's on to new challenges, and back to work at Mylan. The company is investing heavily in research and development, and has numerous drug launches planned. Business is recovering in Europe and booming in Asia, where Mylan has launched a new business with Pfizer (PFE) in Japan. Just last week, it agreed to buy an Indian company that specializes in generic versions of injectable drugs.
Bresch, meanwhile, is crusading for wider distribution of EpiPens, which carry an injectable antidote to allergic reactions. She maintains they should be as widely available as cardiac defibrillators.
"I grew up in an era when generics were considered inferior," she says. "People thought they were made in a bathtub."
But not any more, due in part to Mylan's success and Bresch's quality-control crusade.