Mylan NV, after turning down one suitor and failing to woo another partner, is joining forces with Pfizer Inc.'s Upjohn division as it seeks to navigate the pricing and quality concerns plaguing the generic drug industry.
The merger comes after several years of flagging sales for Mylan and failed attempts to right the ship, a phenomenon seen with other top generic drug companies too. The current leader of the sector, Teva Pharmaceutical Industries Ltd., on Aug. 7 reported second-quarter 2019 revenue decline of almost 8% year over year. The deal also builds on a trend of struggling drugmakers doing megadeals this year in an effort to stave off sales declines and diversify product portfolios.
The combination of Mylan and Upjohn — home to the pharma giant's off-patent drugs like Viagra and Lipitor — would propel the new company beyond Teva to become the largest generics seller. The new company is predicted to have $19 billion to $20 billion in sales in 2020, compared to Teva's estimated $17 billion for that year.
Mylan/Upjohn would also fall just below Eli Lilly and Co. and Amgen Inc. in terms of the largest pharmaceutical companies in the world, according to a presentation from the companies.
Teva previously offered to buy Mylan in 2015 for about $40 billion in cash and stock, but Mylan rejected the deal. The purchase price of this 2015 deal represented $82 per share; Mylan was down to about $20 per share when the Upjohn deal was announced more recently.
After rejecting the Teva acquisition, Mylan made its own unsuccessful attempt to take over another generic-drug maker — Perrigo Co. PLC — later that year. The failure of the Perrigo takeover was the beginning of a steady and persistent downward slide for Mylan's share price.
A market demand
Along with consolidation comes increased efficiency, which can help bring drug prices down by lowering costs to the manufacturer, Clarkston Consulting CEO Tom Finegan told S&P Global Market Intelligence in an interview. Finegan said this increased efficiency will help Mylan and Upjohn "maintain their profitability through higher volumes while delivering the product more cost-effectively."
Part of what led to the revenue fall at generics companies in recent years is the pressure to drive prices down to compete in the marketplace, Finegan said. Companies that can reduce the time to market will win by also keeping costs down.
"Clearly, the marketplace is demanding more cost-effective drugs," Finegan said.
But Peter Maybarduk, director of the nonprofit consumer advocacy group Public Citizen's Access to Medicines Program, called on the U.S. Federal Trade Commission to block the merger. Maybarduk called the deal "anti-consumer" and suggested it will stymie generic competition.
The combined company will be home to Pfizer's off-patent drugs and generics, including Viagra, Lipitor, Zoloft and Lyrica, as well as Mylan's product offerings that include the EpiPen and hundreds of biosimilar, generic and branded drug products.
"Mylan competes on two-thirds of the medicines that Upjohn sells," Maybarduk said in a statement. "Equally important, a merger of two of the largest generic manufacturers would eliminate potential future competition in the generics sector."
Katherine Eban, whose 2019 book "Bottle of Lies" focuses on generics quality, said the ultimate benefits for patients is unclear. She pointed to rampant quality issues that have been flagged by the U.S. Food and Drug Administration and other regulators across the generics industry, which have yet to be resolved.
"I suppose you could say it's going to be better because you can leverage all of this market power and put it into quality systems, but they haven't even recovered from other quality issues that they had," Eban said in an interview.
Generics represent 90% of the pharmaceutical market, according to Eban, and 40% of all generics come from India where the FDA cannot keep up with oversight.
Mylan has been cited for data integrity noncompliance by the U.S. FDA various times at facilities in the U.S. and India from 2015 on. The company was among those tied up in the 2018 international recall of the blood pressure medicine valsartan, which was found to contain cancer-causing impurities. The incident raised concerns about generic drug companies' ability to control quality.
Eban said Mylan used to be primarily based in West Virginia but has transitioned to having half of its employees in India.
Other generics companies have similarly relied on overseas manufacturing, including Pfizer after the 2015 acquisition of Hospira, which was dogged by manufacturing issues. Pfizer ceased operation at two Hospira manufacturing sites in India earlier in January, one of which had received an FDA warning letter for data manipulation.
"The majority of all of our generics are coming from overseas, and the FDA has had to become a global watchdog," Eban said. "It's a domestic agency that has been given this global mandate, and it has struggled to find a way to effectively regulate these companies."
Companies like Mylan and Pfizer who have sent their manufacturing overseas "can cut costs by 80% overnight" by doing so, Eban said. In some cases, as revealed by previous FDA interventions, good manufacturing processes are not followed as closely. Eban said "endemic fraud" is occurring in these manufacturing facilities, including manipulation of data used to secure regulatory approvals.
"What that means for consumers is that the drug they are purported to be getting is not actually the drug they're really getting," Eban said.
On top of quality concerns, Mylan's bestselling epinephrine injector, the EpiPen, has faced negative attention over price fixing and shortages. The Department of Justice accused the company of incorrectly classifying the device as a generic drug, resulting in a $465 million settlement in 2017. Shortages of EpiPen products in the U.S., where it is assembled by Mylan's partner Pfizer, have remained a persistent problem for patients.