Pfizer to Merge Its Upjohn Generics Business with Mylan to Form New Generics Company
Mylan and Pfizer have agreed to combine Mylan with Upjohn, Pfizer’s off-patent branded and generic established medicines business, to form a new pharmaceutical company. The deal, which is expected to close in mid-2020, will create a new company with pro forma 2020 revenues of $19 billion to $20 billion.
Under the agreement, which is structured as an all-stock, reverse Morris trust transaction, each Mylan share would be converted into one share of the new company. Pfizer shareholders would own 57% of the combined new company, and Mylan shareholders would own 43%. The Boards of Directors of both Mylan and Pfizer have unanimously approved the transaction. A reverse Morris trust is a tax-optimization strategy in which a company wishing to spin off and subsequently sell assets to an interested party can do so while avoiding taxes on any gains from such asset disposal under certain conditions.
The new company is expected to have pro forma 2020 revenues of $19 billion to $20 billion. Pro forma 2020 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is anticipated to be in the range of $7.5 billion to $8.0 billion, including phased synergies of approximately $1 billion annually to be realized by 2023. Pro forma free cash flow for 2020 is expected to be more than $4 billion.
The new company will be renamed and rebranded at closing, but the Upjohn name will be used in China and select emerging markets. The new company will be led by Mylan’s current Chairman Robert J. Coury, who will serve as Executive Chairman of the new company. Michael Goettler, current Group President, Upjohn, will serve as Chief Executive Officer (CEO) and Rajiv Malik, current Mylan President, will serve as President of the new company. Ken Parks, currently Chief Financial Officer of Mylan, has agreed to depart the company at closing. Heather Bresch, Mylan’s current CEO, will retire from Mylan upon the close of this transaction. The Board of Directors of the new company will include its Executive Chairman and its CEO as well as eight members designated by Mylan and three members designated by Pfizer for a total of 13 members.
The new company will be domiciled in the US and incorporated in Delaware and will operate global centers in Pittsburgh, Pennsylvania; Shanghai, China, and Hyderabad, India.
The combination will be effected through a reverse Morris trust, under which Upjohn is expected to be spun off or split off to Pfizer’s shareholders and simultaneously combined with Mylan. The transaction is expected to be tax-free to Pfizer and Pfizer shareholders and taxable to Mylan shareholders. The transaction is anticipated to close in mid-2020, subject to approval by Mylan shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required by Pfizer shareholders. Upjohn will issue $12 billion of debt at or prior to separation, with gross debt proceeds retained by Pfizer. The new company will have approximately $24.5 billion of total debt outstanding at closing, including $12 billion of gross debt for Upjohn to fund a $12-billion preclosing cash payment to Pfizer.
Pfizer following the close of the transaction
Following the close of the transaction, Pfizer expects to generate 2020 revenues of approximately $40 billion, driven by its science-based Biopharmaceuticals Group, with its Innovative Health business units (excluding Consumer Healthcare), including biosimilars, as well as a Hospital business unit that commercializes a global portfolio of patent-protected and off-patent injectable and anti-infective medicines.
In addition, Pfizer anticipates achieving income before tax margins (expenses as a percentage of revenue plus other income and deductions) in the mid-30s% range and operating cash flow of $11 billion to $12 billion. Pfizer also expects that following the closing of the transaction the combined dividend dollar amount received by Pfizer shareholders in the event the equity distribution is structured as a spinoff, based upon the combination of continued Pfizer ownership and an expected 0.12 shares of the new company granted for each Pfizer share, will equate to Pfizer’s dividend amount in effect immediately prior to closing.
The new company at a glance
On a market basis based on pro forma revenues, the new company will have approximately 55% of its revenues from developed markets (North America and Europe), approximately 30% in Asia Pacific, and 15% in emerging markets. The pro forma revenue mix by product type breaks down as follows: 56% for prescription drugs (physician-prescribed and marketed mostly with a brand name); 34% for unbranded generics (of which, 19% is ex-US and 15% is US); 6% for over-the-counter products; and 4% for biologics. The companies say that they expect $3 billion in new revenue from products expected to launch by 2023 and that approximately two-thirds of its pipeline will be complex unbranded generics, biosimilars, and global key brands.
On a manufacturing basis, the combined company of Mylan and Upjohn will have 51 manufacturing site: 25 oral solid dosage manufacturing sites, seven injectable drug-manufacturing sites, eight complex dosage form sites, and 11 active pharmaceutical ingredient manufacturing sites. The new company will produce more than 80 billion doses annually with 3,000 brands/molecules and serve 165 countries worldwide. The combined new company will have 45,000 employees.