GSK GSK plc

By Jonathan D. Rockoff and Cara Lombardo 

Pfizer Inc. is in talks to merge its off-patent drugs business with generic drugmaker Mylan NV, according to people familiar with the matter, in a deal that would create a giant global seller of lower-priced medicines.

The deal, which hasn't been completed, could be announced as early as Monday if an agreement is reached, the people said. The companies have discussed a stock deal in which Mylan shareholders would own a little more than 40% of the new entity and Pfizer shareholders the remainder, one of the people said. Pfizer would also receive about $12 billion in proceeds from a new sale of debt, this person said.

Mylan's market value currently stands at just under $10 billion.

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.

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.

Current Mylan Chief Executive Heather Bresch would depart, the person said. The combined company would be based in the U.S.

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.

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.

Industry officials have speculated that consolidation would provide an escape by allowing companies to cut costs, pivot to faster-growing products like copies of biotech drugs and build heft to confront the big buyers.

Last year India's Aurobindo Pharma Ltd. agreed to buy parts of Novartis's generic-drugs business in a deal worth up to $1 billion.

Both Pfizer and Mylan, which is incorporated in the Netherlands but run from Pittsburgh, had been seeking ways to bolster their slowing businesses.

In May, Mr. Bourla broached the idea of a combination with Mr. Coury, one of the people 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.

Upjohn's first-quarter sales were down $45 million from a year earlier, to less than $3.1 billion.

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 sales.

But their sales have been declining since generic rivals hit the market, weighing on the company as it seeks to rev up growth by launching new branded drugs and vaccines for cancer, heart disease and other conditions. To focus on fast-growing branded medicines, Pfizer has been shedding animal-health and other noncore businesses as it does deals to add cutting-edge treatments.

Currently the New York-based company 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-priced 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 drew criticism from patients, doctors and lawmakers for raising the price nearly 550% between 2007 and 2016.

Mylan reported $2.5 billion in first-quarter sales, down 7% from a year earlier.

The company's portfolio of generic drugs has been hurt by general pricing pressures. And Mylan is burdened by roughly $14 billion in debt, much of it accumulated from deals for other drugmakers like Sweden's Meda.

The company 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.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

July 29, 2019 05:33 ET (09:33 GMT)

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