Mylan’s Merger with Pfizer’s Upjohn Unit

By Dimitrios Apostolopoulos (University of Warwick), Chris Leung (University of Warwick) and Ilya Korzinkin (UCL) - Date: 07/09/2019

  • Acquirer: Pfizer

  • Target: Mylan

  • Announcement date: 29/07/2019

  • Pfizer Advisors: Goldman Sachs, Guggenheim Securities

  • Target Advisors: Centerview Partners, PJT Partners

Overview of the deal

Coming at a precarious period in healthcare where big drugmakers are feeling the pressure of patent protection losses and lower-priced rivals, Mylan has unveiled a new long-promised strategic revamp through a 1-for-1 all stock merger with Pfizer’s off-patent medical unit, Upjohn. Where Mylan has foreseen its market value deteriorate by a third in 2019 alone, both businesses are banking on the merger to reignite declining sales through a combination of “Mylan’s growth assets” with “Upjohn’s growth markets” as cited by Pfizer CEO Albert Bourla. The merger would accelerate Mylan’s strategy of bolstering operational scale and commercial capability, and in the process creating a generics company that is substantially larger than competitors in the region.

Pfizer’s rationale for spinning off Upjohn, which generated 22% of the pharmaceutical giant’s Q2’19 revenue, stems from its longstanding effort to split core operations into 3 distinct units – innovative medicines, consumer healthcare and lower margin generic drugs. Pfizer and GlaxoSmithKline (LSE/NYSE: GSK) announced back in December 2018 that they would merge consumer healthcare businesses, meaning once the Upjohn-Mylan deal is completed, this would allow Pfizer to focus on advancing its considerably more profitable innovative drugs division that includes cancer treatment Ibrance and pneumonia vaccine Prevnar. For a change, Pfizer is getting smaller, losing its crown as the world’s largest drug maker by market share. Simultaneously, the move could also spark a potential trend for similar deals as more pharmaceutical companies look to reposition themselves higher up the value chain in innovative medicines, steering away from lower-cost generics.

With Pfizer’s shareholders owning 57% of the resulting entity, the deal is set to be structured as a reverse Morris trust, where Pfizer will separate Upjohn in a tax-free spinoff, then combined with Mylan.

Company Details (Pfizer)

Pfizer is a research based global biopharmaceutical company engaged in the discovery, development and manufacturing of “Innovative Health” and “Essential Health” products. Key products include blockbuster drugs Lipitor, Lyrica, Viagra, Celebrex and Xanax.

- Founded in: 1849

- CEO: Albert Bourla

- Number of employees: 92,400 (2018)

- Market Cap: $230.46bn -EV: $264.68bn

- LTM Revenue: $53.64bn -LTM EBITDA: $22.56bn

- LTM EV/Revenue: 4.93x -LTM EV/EBITDA: 11.73x 

Company Details (Mylan)

Mylan is a global generic pharmaceuticals provider with a growing diverse portfolio of over 7,500 products including prescription generic, branded generic, brand-name and biosimilar, similar as well as OTC remedies.

- Founded in: 1961

- CEO: Heather Bresch

- Number of employees: 35,000 (2015)

- Market Cap: $10.72bn -EV: $23.68bn

- LTM Revenue: $11.29bn -LTM EBITDA: $3.55bn

- LTM EV/Revenue: 2.10x -LTM EV/EBITDA: 6.67x

Projections and Assumptions

Short-term consequences

A series of high profile systemic and internal issues that the merger may not be able to rectify have plagued Mylan. The company is among many drug makers embroiled in lawsuits seeking to hold them responsible for the continuing opioid epidemic, with forecasts of total liability still uncertain due to its scale and complexity. Additionally, Mylan’s infamous emergency allergy kit has also been experiencing a stark decline in sales since the company came under serious criticism for steep price hikes of over 400% back in 2016.