Perrigo spurning Mylan’s advance
Analysts favor bid by Israeli firm Teva for Cecil drug giant
As speculation percolated Wednesday that local generic drug giant Mylan was preparing to raise its spurned, unsolicited bid for rival drugmaker Perrigo Co., Mylan’s intended prey made it clear that such a deal would continue to be a tough sell.
“The board believes that we have a strong business plan as an independent company. So it’s not only price” that caused Perrigo’s board to reject Mylan’s initial $205a-share offer late Tuesday, Perrigo CEO Joseph Papa told analysts in an earnings conference call the same day.
Mr. Papa also said Mylan’s roughly $29 billion offer, which was made public April 8, was unexpected.
Although the two drug giants had “a previous conversation,” he said the two had not communicated in nearly a year.
“So it was a surprise to me” when the offer came via letter and phone call April 6, Mr. Papa said.
Mylan’s initial bid for the Dublin-based drugmaker, which specializes in private-label over-thecounter medications, has been widely viewed as a defensive move
aimed at preventing Mylan itself from being gobbled up by a larger rival.
And, after weeks of speculation, such a rival emerged Tuesday in Israel’s Teva Pharmaceutical Industries, which offered to buy Mylan for $82 a share, or some $40 billion.
Mylan has not responded publicly yet to that offer, although the company had denounced the rumored deal last week, saying it lacked “sound industrial logic and cultural fit.”
“Mylan is fully committed to its stand-alone strategy,” the firm said in a statement.
While investors wondered how the three-way takeover battle will play out — including the possibility that other bidders would enter the ring — Standard & Poor’s indicated it favored a Teva-Mylan combination over the Perrigo deal.
The rating agency said it was revising Mylan’s creditwatch listing to “developing” from “negative,” saying that change reflected the probability that Mylan’s credit rating would go up if the Teva deal went through.
S&P earlier this month had placed Mylan on credit watch with negative implications, saying it might lower the company’s credit rating if it succeeded in buying Perrigo.
In making its case Tuesday, Teva CEO Erez Vigodman said he was confident that Mylan’s board and shareholders would conclude that his company’s bid was “significantly more attractive” than the proposed deal with Perrigo.
Teva said the merger was expected to generate some $2 billion in synergies and tax savings. A Teva spokeswoman Wednesday declined to identify where cost cuts might be made.
Morningstar analyst Michael Waterhouse said that since Teva and Mylan have “nearly exact” generic drug operations, savings likely would come by closing manufacturing facilities, and eliminating redundant marketing and administrative operations.
That potentially would be bad news for Mylan’s local operations.
Mylan, which earlier this year reincorporated in the Netherlands to lower its tax bill, maintains its corporate and administrative offices in Cecil and its main U.S. manufacturing plant in Morgantown, W.Va.
Meanwhile, for consumers, combining Teva — the world’s largest generic manufacturer — with No. 3 Mylan would heighten concerns that the rash of pharmaceutical mergers in recent years has contributed to generic drug price increases.
“When the big get bigger, it’s not good for consumers,” said Rob Frankil, a Sellersville, Pa., pharmacy owner. “Mylan’s prices have skyrocketed as much or more as any other generic drug manufacturer’s.”
Mr. Frankil testified at a U.S. Senate hearing in November regarding generic drugs whose prices doubled or more between October 2013 and April 2014. Generics account for 86 percent of drugs dispensed in the U.S.
Industry officials said data cited by the Senate panel overlooked thousands of generics whose price has gone down significantly in recent years, saving consumers billions of dollars.
Analysts believe a potential Teva-Mylan merger raises antitrust issues.
Mylan and other generic producers will soon offer a version of Teva’s Copaxone, a brand name treatment for multiple sclerosis. Teva, meanwhile, is getting ready to launch a generic version of one of Mylan’s biggest sellers, EpiPen, a brand name drug for breathing problems related to allergies.
Mylan’s shares ended the day Wednesday at $72.40, down $1.67, or 2.25 percent. Teva’s shares also lost ground, falling $1.15, or 1.79 percent, to $63.01, while Perrigo jumped $8.68, or 4.5 percent, to finish at $201.50.