Mylan chair: Pfizer deal fits ‘ like a glove’
New company could see $ 20B in revenue
Generic drug giant Mylan NV is being acquired by Upjohn, Pfizer Inc.’ s off- patent branded and generic medicines business, to create the biggest specialty- generic drug company.
The deal is expected to close in mid- 2020 and will be accompanied by the retirement of Mylan CEO Heather Bresch, the first woman CEO of a Fortune 500 pharmaceutical company, Cecil- based Mylan said in a statement. Under terms of the all- stock deal, each Mylan share would be converted into one share of the new company, with Mylan shareholders owning 43% of the new company and Pfizer shareholders owning 57%.
The new company, which will be renamed at the close of the deal, is expected to have 2020 revenues of $ 19 billion to $ 20 billion and cash flow of more than $ 4 billion. Mylan’s Chairman, Robert J. Coury, will serve as executive chairman of the new company.
“It fit us like a glove,” Mr. Coury said about the tie- up during a call with investors Monday. “Scale does matter in the health care industry. This is just the beginning of unlocking value.”
Michael Goettler, group president, Upjohn, will serve as CEO of the new company and Mylan President Rajiv Malik will continue in the role of president.
Mylan CFO Ken Parks will be leaving the company with the closing after three years in that role.
“We view this as the right opportunity at the right time,” Pfizer CEO Albert Bourla told investors during Monday’s call. “Mylan is well positioned for future growth.”
Pfizer’s off- patent division includes such best- selling drugs as Viagra and Lipitor. Mylan makes EpiPen, the company’s first $ 1 billion product and one that once dominated the market for epinephrine injectors with a share that exceeded 95% as an emergency treatment for allergic reactions as public schools rushed to stock the medicine.
The new board will be
comprised of the executive chairman, CEO, eight folks appointed by Mylan and three from Pfizer for a total of 13.
A large employer
A Pfizer spokeswoman said both Mylan’s Robert J. Coury Global Center in Southpointe and Mylan Pharmaceuticals’ plant in Morgantown, where about 3,000 people work, would be part of the new company.
But it was too early to discuss employment levels at each facility, the spokeswoman said.
About 700 people were employed at the Mylan’s Cecil offices in 2015.
Ms. Bresch, 50, has been Mylan CEO for nearly eight years and a Mylan employee for 27 years. She started her career at the generic drugmaker as a data entry clerk when the company had only 300 employees. Mylan has a global workforce today of 35,000.
“I look forward to continuing to work with the entire Mylan family over these next several months to bring this transaction to a successful close and to the exciting future for all of us,” Ms. Bresch said in a prepared statement.
Last year, Ms. Bresch was the second highest compensated executive in the Pittsburgh area at $ 13.3 million, second to PNC Financial Services Group CEO Bill Demchak at $ 15.8 million, according to a Post- Gazette analysis.
Less focus on generics
The new company, which will incorporate in Delaware from the Netherlands, will focus less on generic pills in the future for revenue, anticipating only a third of its sales from traditional generics, Mylan executives said on the call. The balance of sales will come from injected or infused solutions or biosimilars — knockoffs of more expensive brand- name drugs made from live cells instead of chemical compounds.
The deal comes during a rough patch for Mylan caused by falling prices for generic drugs, manufacturing issues at its Morgantown plant, and the company’s alleged involvement in a price- fixing conspiracy with other drugmakers.
Mylan stock has fallen about 75% from its high in 2015. A Bloomberg analysis concluded that the deal may be the best thing for Mylan, creating the largest specialty- generic drug company and providing a management shakeup and significant cash generation.
S& P Global Ratings affirmed Mylan’s BBB- credit rating and revised the company’s outlook to developing as it prepares to merge with Pfizer’s Upjohn unit. The rating reflects the belief that the new company will “have better profitability and product diversity.”
Losses for Mylan stretched into the second quarter while revenue rose slightly, according to results issued Monday along with the merger announcement.
Mylan reported revenue increased 2% to $ 2.85 billion for the three months ending June 30. The net loss on earnings was $ 168.5 million, which compared to a gain of $ 37.5 million a year ago.
Cowan & Co. senior analyst Ken Cacciatore panned the MylanUpjohn deal, writing in notes to investors Monday that the “merger will solve nothing and that the pressure and negative view of the combination will likely only increase into the eventual close.”
“We have long felt that standalone Mylan was absolutely broken and we believe that rather than fixing Mylan’s problems, the Upjohn business will likely compound them,” Mr. Cacciatore wrote.
Cowan’s thesis is that Mylan’s business model is in “systemic decline.”
Mylan’s second quarter results and full year 2019 revenue guidance of $ 11.5 billion to $ 12.5 billion, and earnings estimates of $ 3.80 to $ 4.80 per share “would essentially be flat with 2017 levels,” he wrote. “This lack of revenue growth from the 2017 levels should be concerning, especially since it assumes roughly $ 1 billion in new generic launches.”
A pile of debt
At the same time, Pfizer’s decision to spin off its Upjohn segment, which represents about 20 percent of its revenue, lowered Pfizer’s S& P credit rating to AAfrom AA.
The Mylan- Upjohn announcement comes after Pfizer previously said it would divest its consumer health business and acquire Array Biopharma for $ 11.4 billion.
Pfizer continues to remain on CreditWatch and the ratings downgrade reflects a more aggressive financial policy by the pharma company that is tolerant of higher than anticipated longterm debt, according to S& P. The new company will have about $ 24.5 billion in total debt at closing.
The deal, which was unanimously approved by the boards of Mylan and Pfizer, is expected to be tax- free to Pfizer and its shareholders and taxable to Mylan shareholders. A vote on the deal by Pfizer shareholders is not needed, but Mylan shareholders will vote on the merger.
The deal is also subject to regulatory approval.