Commentary

Pfizer Close To Deal With Mylan To Combine Low-Price Drug Offerings

Sources are telling many reporters that Pfizer is close to a deal that would merge its off-patent drugs business with generic-drug maker Mylan to create a huge global entity making and marketing both types of less-lucrative pharmaceuticals. Neither company would officially comment on the reports, which indicate that an agreement is expected to be announced today. 

“The deal would bring together two businesses whose sales have slowed since former big sellers lost patent protection and began facing lower-priced competition. For Pfizer, these include Lipitor cholesterol pills and the male-impotence drug Viagra. 

“The companies are betting that combining Pfizer’s off-patent business with Mylan, known for the EpiPen emergency allergy shot, will provide a pathway to reignite sales growth,” write The Wall Street Journal’s Jonathan D. Rockoff and Cara Lombardo, who broke the story Saturday.

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“Michael Goettler, who runs Pfizer’s off-patent drugs business, would become chief executive of the combined company if the deal goes through, and Mylan Chairman Robert Coury would be executive chairman, one of the people said,” they add. 

Mylan CEO Heather Bresch is reportedly out of the picture. 

The deal is the “best-case outcome” for Mylan, Jeffries health-care strategist Jared Holz tells CNBC’s Meg Tirrell. He also “called the management shuffle a positive for the deal, noting Mylan’s had ‘one of the most out-of-favor management teams in all of health care.’”

Mylan is registered in the Netherlands, with principal executive offices in Hatfield, Hertfordshire, UK and a "global center" in Canonsburg, Pennsylvania. Pfizer is based in New York City.

Broader trends loom beyond the particulars of this deal, however.

“Big Pharma has been increasingly turning to mergers and acquisitions in recent years to either sell non-core assets or buy innovative drugmakers as their own products are close to lose patent protection. All major companies are focusing on becoming one of the top three in whatever category they operate,” point out  Financial Times’ Hannah Kuchler and James Fontanella-Khan. 

“Pfizer’s transaction with Mylan is the latest in a wave of large pharma and healthcare deals this year, including Bristol-Myers Squibb’s $90 billion acquisition of biotech Celgene, Roche’s $4.8 billion takeover of gene therapy company Spark Therapeutics and Johnson & Johnson’s $3.4 billion acquisition of surgical robotics specialist Auris Health. AbbVie last month signaled its intention to buy Allergan, the maker of Botox, for $63 billion,” Kuchler and James Fontanella-Khan add.

“The generics industry has hit a rough patch: Consolidation of major drug-buying consortia has led to falling prices for manufacturers in the U.S. That has eroded revenues and led to severe share-price declines for companies in the sector. Adding scale is one possible way to contend with those harsh realities,” observes Charley Grant for The Wall Street Journal.

The decline in revenue “has also resulted in problems for consumers as some drugmakers elect to abandon medications that are no longer profitable, leading to shortages and other imbalances in the marketplace,” Bloomberg’s Timothy Annett and Riley Ray Griffin write  for Yahoo Finance.

“At the same time, giant pharmaceutical companies including Pfizer have been focusing more on developing innovative treatments for cancer and rare diseases. Pfizer has said that it’s trying to increase the pace of its own drug development and has been looking for ways to replenish its pipeline of potential blockbusters,” Annett and Griffin continue.

“Mylan shareholders would receive a little more than 40% of the newly formed entity, with Pfizer shareholders receiving the remainder, a source tells Reuters’ Maria Ponnezhath and Gregory Roumeliotis, “adding that Pfizer would also get about $12 billion in proceeds from a new sale of debt.”

“The combined company could draw annual sales of more than $20 billion. Mylan reported 2018 sales of $11.4 billion and while Pfizer hasn’t broken out full-year numbers for its China-based Upjohn unit, its first quarter sales were just more than $3 billion. Pfizer’s total 2018 revenue was $53.6 billion,” CNBC’s Tirrell writes.

“Pfizer, one of the largest drugmakers in world, is separately working to expand its portfolio of name-brand drugs, and last month the company agreed to spend $11 billion to buy Array BioPharma, a small venture that is developing potentially lucrative cancer treatment drugs,” Jackie Wattles writes for CNN Business.

“Pfizer is also launching a joint venture with GlaxoSmithKline that will have an estimated $12.7 billion in annual sales. That deal, expected to close in the second half of this year, will bring together Pfizer's big over-the-counter products like Centrum and Caltrate with GSK's top brands, including Excedrin and Nicorette,” Wattles adds.

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