Pfizer announced on Monday that it would combine its off-patent drugs division with the pharmaceutical company Mylan in an all-stock transaction. The Upjohn unit sells treatments such as the cholesterol drug Lipitor. The transaction could create “a potential powerhouse in the increasingly challenging business of producing generic medicines,” according to the New York Times.
Coming after years of consolidation in the generic-drug industry, the deal could trigger additional acquisitions, as drug companies continue struggling to keep up sales in the face of falling prices and consumers continue dealing with the rising cost of branded medicines. Pfizer’s decision to make the deal reflects the pharma giant’s narrowing focus on more lucrative branded drugs. While Mylan produces mostly drugs, it is best known for its EpiPen emergency allergy medication.
Because of the changes in the industry, Pfizer has acquired new drugs with considerable potential by means of deals such as its $10.6 billion takeover bid in June for Array BioPharma, which produces specialized cancer treatments. In addition, Pfizer has jettisoned lower-margin businesses, as it did in 2018 by combining its consumer health care division with a comparable unit owned by GlaxoSmithKline.
According to the Times, “Pfizer used Upjohn to package older products like Lipitor and the erectile dysfunction drug Viagra — whose patents have expired or are about to — with its generics business. Sales of those drugs have plummeted in the United States, but Pfizer hoped Upjohn would be able to capitalize on the growing market for so-called branded generics in countries like China, where low-quality and even fraudulent generic drugs proliferate and consumers seek out brands like Pfizer as a guarantee of quality. Pfizer even moved Upjohn’s headquarters to Shanghai this year.”
However, making Upjohn a stand-alone unit also raised questions about whether Pfizer wanted to spin it off. In April, Albert Bourla, Pfizer’s chief executive, said he might make such a move sometime, “but this is not what is in my mind right now.”
The combined business, which will ultimately be renamed, is projected to have about $19 billion to $20 billion in annual sales. The companies expect annual savings of $1 billion by 2023 because of the deal.
According to Bourla, “We are creating a new champion for global health — one poised to bring world-class medicines to patients across a wide range of therapeutic areas.”
Mylan’s stock price is down about 30 percent this year. The company has dealt with several controversies recently, including the steeply rising price of the EpiPen and an ongoing federal inquiry into price-fixing in the generic drug industry. Heather Bresch, Mylan’s chief executive officer and daughter of Senator Joe Manchin III (D-WV), will relinquish her role. She spent most of her career at Mylan and became chief executive in 2012. She drew public wrath in 2016 when it was revealed that her compensation had risen as the price of the EpiPen went up astronomically.
Bresch, one of the first people in the industry to try to blame rebates paid to pharmacy-benefit managers for rising drug prices, was one of several pharma executives to make shareholders angry by moving company headquarters from Pennsylvania to the Netherlands to gain tax savings and to block a takeover by Teva that many investors wanted. Bresch will be succeeded by the head of Upjohn, Michael Goettler.