MYL Mylan NV

By Jared S. Hopkins 

A deal to merge Pfizer Inc.'s off-patent drugs business with generic drugmaker Mylan NV caps new Pfizer Chief Executive Albert Bourla's remodeling of one of the world's biggest pharmaceutical companies.

In his nearly eight months at the helm, Mr. Bourla has moved quickly to remake Pfizer into a company focused on patent-protected prescription medicines with the potential for significant sales growth, from a more diversified but slower-growing player.

The deal with Mylan, announced Monday, is Mr. Bourla's biggest move so far, after he oversaw a restructuring at the company and made smaller deals to boost Pfizer's pipeline of cancer and other drugs under development.

Mr. Bourla, 57 years old, has also been guiding Pfizer's plan to combine its division selling Advil, vitamins and other medicine-chest staples with GlaxoSmithKline PLC's own consumer-health business into a joint venture that will eventually be spun off.

"A good gardener needs to prune the tree when spring starts," Mr. Bourla said in an interview. "Pfizer is in the spring of high growth."

Mr. Bourla, a veterinarian from Greece hired by Pfizer while doing animal-health research, became chief executive in January after holding a variety of company roles over more than two decades. He said in the interview he began plotting out his vision for the company's future about a year earlier, when he was promoted to chief operating officer and joined the board.

That vision, he said, meant tightening Pfizer's focus on prescription medicines after his predecessor had already moved the company in that direction by hiving off the company's animal-health and other non-pharmaceutical assets.

Brand-name drugs and vaccines, like the company's top-selling Prevnar pneumonia vaccine, can generate more sales and bigger margins than off-patent medicines facing competition from lower-priced generics. Yet off-patent products have been reliable sources of billions of dollars in cash flow for Pfizer, and as it knows well, R&D can be risky.

Pfizer executives are convinced the bet is a good one, after years of cultivating the company's pipeline and with the opportunity to increase sales by mid- to high-single-digit percentages, after years in the low-digit percentages.

"Our compass is growth, top-line growth," Mr. Bourla said.

Pfizer's recent history of slow sales stemmed from the loss of patent protection for a raft of big-selling drugs, like Lipitor for cholesterol and male-impotence treatment Viagra.

Early this year, Pfizer parked those declining brands into a new unit called Upjohn and began breaking out its sales. Under the new deal, Upjohn will merge with Mylan, best known for the EpiPen emergency allergy treatment, to create a new company.

The new company, which isn't yet named, is expected to be among the world's biggest sellers of generic and off-patent medicines with more than $19 billion in yearly sales. Under the terms, shareholders of Pfizer will own 57% of the new company, while Mylan shareholders will own the rest.

Pfizer will be paid $12 billion in proceeds from new debt raised by the new company. Its leadership will be drawn from both companies.

Mylan Chairman Robert Coury, who will become executive chairman of the new company, said Upjohn fits Mylan "like a glove."

The new company will be U.S.-based, a return of sorts for Mylan after becoming a Dutch corporation in 2015 through an acquisition, while keeping its headquarters in Pittsburgh. That deal came amid a flurry of what are called inversions by U.S. companies, in which they moved their corporate home overseas to lower their tax burdens. Meantime, Upjohn was headquartered in Shanghai.

The deal is expected to close in the middle of next year. By that time, Pfizer is expected to be a far leaner version of what it was just a few years ago, and on its way to realizing Mr. Bourla's vision for the drugmaker's future -- or dashing his hopes.

Part of Mr. Bourla's conviction in the benefits from such a finely toned Pfizer stems from a Silicon Valley tour that he took company leadership on in January. The group visited Alphabet Inc.'s Google, Apple Inc. and Salesforce.com Inc., among other firms, to understand their recipes for success, Mr. Bourla said.

The takeaway, he said, was each company's culture was different but marked by employees who are inspired and a single-minded purpose.

"Companies that stay true to their purpose perform much better," Mr. Bourla said.

His plan is risky, especially without the safety net that the steady cash flow from off-patent drugs provided. Companies fail more often than they succeed at bringing novel drugs to the market, yet Pfizer is betting it can win approval for a number of promising prospects.

"Any failure would potentially impact it a little bit more, whether that's a new drug or any risk," said Ashtyn Evans, an analyst at Edward Jones. "On the other side, the successes will have a bigger impact, too."

Pfizer shares fell 3.8% on Monday, while Mylan jumped more than 12%. Analysts said Pfizer's drop had nothing do with the Mylan deal, but because Pfizer lowered its guidance to reflect the formation of the Glaxo joint venture.

Mr. Bourla said that as a child he had an affection for both medicine and animals, which drew him to become a veterinarian. Working in Greece, he developed an interest in commercial aspects of animal health and was recruited. Since joining Pfizer, he has since relocated his family across five countries.

"I never thought I would make it the way that I made it," he said. "When the board elected me and asked me, 'What do you have to say?' I said, 'Only in America.'"

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. Pfizer reported net income of 89 cents a share for the quarter, up from 65 cents a share a year earlier.

The drugmaker lowered its full-year sales and earnings guidance to $2.76 to $2.86 a share for the year on revenue of $50.5 billion to $52.5 billion.

Mylan said its own second-quarter sales totaled $2.85 billion, an increase of 2% from a year ago.

(END) Dow Jones Newswires

July 29, 2019 17:58 ET (21:58 GMT)

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