Pfizer May Buy Low and Smart in Generics Gambit

Albert Bourla, chief executive of Pfizer.


Gian Ehrenzeller/Keystone/Associated Press


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Chief Executive Albert Bourla knows a deal when he sees one.

The pharmaceuticals giant is in talks to merge its off-patent drugs business with generics manufacturer


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The Wall Street Journal reported. The companies have discussed a stock deal in which Pfizer shareholders would own the majority of the new company, which would include well-known drugs like EpiPen, Lipitor and Viagra.

The generics industry has hit a rough patch: Consolidation of major drug-buying consortia has led to falling prices for manufacturers in the U.S. That has eroded revenues and led to severe share-price declines for companies in the sector. Adding scale is one possible way to contend with those harsh realities. Mylan also has a large presence overseas and a well-regarded pipeline of new products, such as cheaper versions of expensive biologic medications.

Should the deal reach the finish line, it certainly helps that Mr. Bourla is buying low. Mylan’s shares were down more than 75% from their 2015 peak as of Friday—par for the course in the beleaguered sector.  Over that time Pfizer’s shares are up by more than 20%.

Familiarity increases the odds of success. The companies already work together on manufacturing EpiPen, which should limit headaches from integrating operations. And while industry sales aren’t growing, the generics drugs business still generates significant cash flow. The new company will thus be able to carry significant leverage on its balance sheet. Pfizer plans to issue $12 billion in fresh debt in conjunction with the deal.

Just as importantly for Pfizer, the deal accomplishes a goal that the company has discussed in various forms for years: separating its business of newer drugs with patent protection from its maturing products. Spinning out older drugs may increase the valuation of newer medicines in its portfolio such as the pneumonia vaccine Prevnar 13 or prostate cancer drug Xtandi.

To that end, Pfizer agreed last month to buy cancer specialist Array BioPharma for more than $10 billion and agreed last December to combine its consumer-health business with


and eventually spin it out. A possible deal with Mylan would be entirely consistent with this strategy.

That ought to keep Pfizer shares, which have rallied about 13% over the past year, in healthy spirits.

Write to Charley Grant at

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