Pfizer to merge off-patent drug business with Mylan
Deal could trigger further changes in the industry, which has been shaken by competition
Pfizer Inc. said on Monday it had agreed to merge its off-patent drugs business with Mylan N.V., creating a new company that will be one of the world’s biggest sellers of lower-priced medicines in an increasingly competitive market.
Shareholders of Pfizer will own 57% of the new, as-yet-unnamed business, and the rest of it will be owned by shareholders of Mylan. The new company is expected to have more than $19 billion (U.S.) in yearly sales.
Mylan shares rose 14% Monday, while Pfizer was down 2%.
For the two companies, the deal is a bet that combining Pfizer’s off-patent drugs unit, called Upjohn, with Mylan will provide a pathway to reignite growth.
Sales have slowed at each of the two businesses since former big sellers, such as Pfizer’s Viagra male-impotence pills and Mylan’s EpiPen emergency allergy treatment, began facing competition. Mylan said its own second-quarter sales totaled $2.85 billion, an increase of 2% from a year ago. Upjohn reported its second-quarter earnings fell11% from a year ago to $2.8 billion.
Upjohn revenue this year is projected to be just over $10 billion, Michael Goettler, who currently heads the business and will lead the new company as chief executive, said on a conference call with analysts.
“This combination creates a stronger company by combining the best aspects of Pfizer’s and Mylan’s DNA,” Pfizer Chief Executive Albert Bourla said on the call.
Officials from the new company said on the call they expect growth to come from bringing together the global footprints of each of the businesses, Mylan’s promising drug-development pipeline and the new entity’s portfolio of branded and generic drugs.
The officials said they are targeting $3 billion in total sales from new product launches by 2023. More than half of the revenue next year is projected to come from North America and Europe, with the rest from Asia and emerging markets.
Mylan Chairman Robert Coury, who will become executive chairman of the new company, said Upjohn fits Mylan “like a glove.”
“I’ve listened very carefully to shareholders,” he said. “This transaction checks every single box that they have discussed with me.”
The new company will have about $24.5 billion in outstanding debt when the deal closes, expected in the middle of next year.
It will face tough industry pressures as it tries to digest two businesses and overcome heightened efforts to control drug costs, Wells Fargo analyst David Maris said in a note to investors. “The combined company is bigger, but we are not sure it is better and integration risks are not minimal,” Mr. Maris said. The new company will be based in the U.S., a return of sorts for Mylan after becoming a Dutch corporation in 2015 through an acquisition, while keeping its headquarters in Pittsburgh. That deal came amid a flurry of what are called inversions by U.S. companies, in which they moved their tax headquarters overseas to lower their tax burdens.
In its case, Mylan set up a foundation, called a “stichting” in Dutch. The foundation effectively functioned as a poison pill to fend off a takeover proposal by rival Teva Pharmaceutical Industries Ltd. Mylan investors supporting Teva’s takeout lashed out.
Sanford C. Bernstein analyst Ronny Gal expressed concern whether the Mylan executives joining the new company would repair relations with shareholders that had frayed when Mylan incorporated in the Netherlands. The new company will be domiciled in Delaware.
“Even within Delaware there is a range of governance structures and we are yet to learn if the new company is structurally responsive to shareholders. This remains a focus point for us,” Mr. Gal wrote in a note to investors.
For Pfizer, hiving off Upjohn would further efforts to double down on fast-growing patentprotected prescription drugs and vaccines. Mr. Bourla has expressed confidence the company will bring to market in the coming years several new products with blockbuster sales, accelerating growth.
While Mr. Goettler will become chief executive of the combined company, Rajiv Malik, Mylan’s current president, will serve as president. Mylan Chief Executive Heather Bresch will retire after the deal closes, the companies said Monday. The deal announced Monday is expected to be tax-free to Pfizer and Pfizer shareholders, and taxable to Mylan shareholders. The new company intends to initiate a dividend of approximately 25% of free cash flow beginning the first full quarter after close.
Pfizer also reported its second-quarter results Monday. The company’s profit rose 30% to $5.05 billion on revenue that slipped 1.5% to $13.26 billion. Pfizer reported net income of 89 cents a share for the quarter, up from 65 cents a share a year earlier.
The drugmaker also lowered its full-year sales and earnings guidance to $2.76 to $2.86 a share for the year on revenue of $50.5 billion to $52.5 billion, to reflect the formation of a joint venture with GlaxoSmithKline PLC and a pair of recent deals. Currently the New Yorkbased Pfizer is combining its consumer-health business with GlaxoSmithKline’s in a joint venture that will eventually be spun off. Last month it agreed to buy cancer drugmaker Array BioPharma Inc. for $10.6 billion.
Meantime, Mylan has been trying to find new sales by developing more complex generics and copies of biotech drugs.