Shareholders of Pfizer will own 57% of the new business and the rest of it will be owned by shareholders of Mylan. The new company is expected to have between $19 billion and $20 billion revenue on a pro forma basis.
The deal brings 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.
Pfizer shares fell 2.9% to $41.82 in morning trading Monday, while Mylan gained 13% to $20.85. Talks of the deal were first reported by The Wall Street Journal on Saturday. The deal could trigger further changes in the generic-drug industry, shaken by competition from Indian makers and under pricing pressure from the groups in the U.S. that buy and distribute the drugs and have been getting bigger.
The squeeze has hurt the sales—and shares—of Mylan and other leading generic drugmakers, notably Teva Pharmaceutical Industries Ltd. Mylan stock has dropped by about 75% from its high in the spring of 2015.
The new company, which will be renamed and rebranded, will be based in the U.S. Mylan is incorporated in the Netherlands but run from Pittsburgh. Pfizer’s Upjohn off-patent drugs business is based in Shanghai.
The deal would further Pfizer Chief Executive Albert Bourla’s efforts to focus on patent-protected prescription drugs and vaccines. Pfizer is in the later stages of developing a number of new products, each of which could surpass $1 billion in yearly sales if approved, accelerating growth.
Michael Goettler, who runs Pfizer’s off-patent drugs business, will become chief executive of the combined company, and Mylan Chairman Robert Coury would be executive chairman. Rajiv Malik, current Mylan President, who will serve as president.
Mylan Chief Executive Heather Bresch will retire after the deal closes, which is expected to happen in the middle of 2020, the companies said Monday. Ms. Bresch, who has been with Mylan since 1992, became the pharmaceutical company’s chief executive in 2012. Ms. Bresch appeared before Congress in 2016 when Mylan drew criticism from patients, doctors and lawmakers for raising the price on EpiPen nearly 550% between 2007 and 2016.
In May, Mr. Bourla broached the idea of a combination with Mr. Coury, a person familiar with the deal said. Earlier, Pfizer had explored spinning out its off-patent drugs business, which it calls Upjohn and is based in Shanghai, and listing it on the Hong Kong stock exchange.
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. Of that revenue, $2.81 billion came from the Upjohn business, which was down 11%.
Upjohn’s products, which besides Lipitor and Viagra include painkiller Lyrica, were once household names and generated billions of dollars in yearly revenue for Pfizer, helping make it one of the world’s biggest drugmakers by sale.
Currently the New York-based Pfizer is combining its consumer-health business with GlaxoSmithKline PLC’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. Mylan’s board, meanwhile, has been conducting a strategic review as the company tries to revive sales by moving into more complex and higher-price generics and copies of biotech drugs.
Mylan management has touted the company’s pipeline of new products. Yet Wall Street has cooled on the company in recent years in large part because of the competition that has emerged for its top-selling product, the EpiPen.
Mylan reported $2.5 billion in first-quarter sales, down 7% from a year earlier. Mylan also is burdened by roughly $14 billion in debt, much of it accumulated from deals for other drugmakers like Sweden’s Meda.
The new company will have about $24.5 billion in outstanding debt when the deal closes. Mylan is also among several generic drugmakers under investigation by federal prosecutors and state attorneys general probing potential collusion to fix the prices on some medicines. Mylan has said it knows of no evidence of wrongdoing.
Pfizer and Mylan already work together. Pfizer makes EpiPen injectors for Mylan. And the two companies jointly make and sell generic drugs in Japan.