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PfizerUpjohnCaseStudy-MikeHopkinson020821.pptxMerger Analysis: Pfizer Upjohn and Mylan
Michael Hopkinson
Operations Management for Biotechnology MGMT 921
08 February 2021
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CMC Project Proposal- Presentation Outline
Overview of Upjohn (Pfizer Established Medicines)
Key Consideration 1
Overview of Mylan
Key Consideration 2
Strategic Direction of “Newco” (Viatris)
Key Consideration 3
Conclusion
Review/ Questions
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UpJohn aka Pfizer Established Medicines Division 2018 Financials
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Total Revenue of Pfizer Spinoff Division ~ $10 billion
LEP
Off patent drugs currently marketed under brand name; most (excluding Premarin) have strong generic competitors in the market; majority of revenue driven by Lipitor, Lyrica, Viagra, and Norvasc
Biosimilars
Not included in the merger!
Sterile Injectables
Not included in the merger!
Pfizer broken into 3 business elements- the Upjohn element is represented above; Pfizer trying to focus on novel development and expand their internal pipeline; next ‘round’ of LOE will begin in the 2023/ 2025 range (depending on litigation around this piece)
Note- Sterile Injectables not included in Established Medicines (part of Innovative Medicine Division, under the Hospital Medicines business unit)
Note- Biosimilars not included as part of the transaction deal
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UpJohn aka Pfizer Established Medicines Division 2019 Financials
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Total Revenue of Pfizer Spinoff Division ~ $10 billion
2019 Financial Report
18 % Revenue decrease in Upjohn business segment
Additional pressures detailed on the right (table)
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Upjohn- Lipitor Revenue Review
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https://www.axios.com/lipitor-pfizer-drug-patent-sales-2019-6937cdfb-47f1-46bc-8cf0-39e6b88e235e.html
Since 2014, annual sales ~$2 billion driven by the Chinese market; driver behind this has historically been hospital bids, but in 2019 Pfizer failed at a large hospital bid in 2019, and subsequently lowered Lipitor's price in China by 30% to attract private patient sales
China is a prescription market, meaning physicians decide which medicines patients take; sales forces educate doctors and hospitals about clinical benefits of their product
Upjohn has strong commercial sales presence in China (5k commercial employees in China), and Pfizer had the first GMP-certified manufacturing site in China
Note- Sterile Injectables not included in Established Medicines (part of Innovative Medicine Division, under the Hospital Medicines business unit)
Note- Biosimilars not included as part of the transaction deal
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Key Consideration 1
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What happens to future Pfizer LOE (loss of exclusivity) drugs?
Ibrance could lose market exclusivity in 2023, followed by Xeljanz in 2025 (account for greater than 10% of Pfizer’s total revenue in 2019)
Pfizer looking to extend exclusivity for a few more years if possible (legal actions)
LOE will continue to play a factor for Pfizer
LOE is a reality for any company involved in developing drugs and bringing them through the approval process and first to market; involved in strategic thinking for the drug lifecycle
This strategic thinking will still be managed by Pfizer (built into their business model, will not be lost with Upjohn)
Launching a generic/ over the counter formulation is a typical response by companies, and the merger company could be a natural partner in this process
WHO IS GOING TO DELIVER IT
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Key Consideration 1
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Conclusion- Pfizer has several years before the next ‘fall off’ from LOE; immediate focus on developing its pipeline and new medicines/ vaccines
Pfizer could option to reboot the LOE business unit, under Established Medicines division
it is possible that Viatris become a natural contract manufacturer for these future LOE drugs (Pfizer shareholders own 57% interest in Viatris).
Future LOE drugs are ‘transferred’ in subsequent divestments to Viatris, which will have an established team to market and sell in regions where generic competitors do not create the same revenue losses as seen in the U.S. (e.g. China).
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Background
“Specialty firm”- drugs prescribed to small patient populations, part of a complex regimen, special shipping and handling requirements, usually more expensive than traditional pharmaceuticals
“Generics firm”- similar versions of approved and authorized drugs, supported by various testing to demonstrate sufficient similarity in structure, function, efficacy and safety to the reference drug
2007 acquired the generics division of Merck (flagship product EpiPen)
2017 acquired Meda; strong position in China; pipeline through acquisitions, rather than R&D
Mylan Background
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Listed as Viatris (previously Mylan)- chart shows 5 year stock price history
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Mylan- 2019 Financial Report
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Total Annual Revenue of Mylan ~ $11.5 billion
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Key Consideration 2
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Why had Mylan’s stock done so poorly over the past few years?
Where is growth for the new company (Viatris) going to come from?
Is Mylan’s pipeline struggling?
Attributed primarily to the generic drug industry itself (all players impacted)
Many generic drug companies (e.g. Teva, Perrigo, Amneal Pharmaceuticals, and Endo International) have also seen a decline from 2015 onwards
Saturated with many players, both established and new
Pricing pressure in the United States (buyers have gained more negotiating power); customer consolidation into larger buying groups capable of extracting greater price reduction
Accelerated FDA approval process for generics also creating increased competition
U.S. is a pure generic, distribution market where retailers and wholesalers make drug-purchasing decisions (patients and doctors have little choice of generic manufacturer)
Mylan sales by region: North America~ 40%;
Mylan sales by type: Generics~ 57% (Mylan launched more generics in the last 5 years, 2014-2019, than any other company)
At the same time, high leverage also hurt the outlook for the company, including from debt related to acquisitions as the sector consolidated- Mylan couldn’t issue equity to reduce leverage, coupled with a declining business forecast
Key consideration of NewCo- move out of US generic manufacturing market (diversify portfolio)
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Key Consideration 2
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Conclusion- Mylan’s stock has suffered because of the market outlook for US generics relative to Mylan’s portfolio, not due to the portfolio itself
7500 products released and more than 3200 in development across ten major therapeutic areas
An in-house R&D, clinical, QARA team of more than 3000 employees globally; 20 biosimilars, one of the largest portfolios in industry)
Critical partnerships and acquisitions completed, positioned well from a portfolio perspective
Need to diversify their position and move their primary business out of a declining US generics space (which the merger will accomplish)
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Merger- Strategic Vision (Viatris)
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Financial Outlook for Viatris
$19-$20 billion expected revenue ($8 billion EBITDA)
~$1 billion cost synergies by 2023
25% of free cash flow to be paid as dividend
$24.5 billion of total debt; Ratio of Debt to EBITDA to be 2.5 by end of 2021
Majority of Sales in Generics
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Merger- Strategic Vision (Viatris)
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Critical Strategic Goals
Enhance global scale, increase presence in China (11% revenue from this market), a prescription market where the commercial team of Pfizer can make a difference
Reduce exposure to US generics commodity markets
Establish stronger foothold in key emerging markets
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Merger- Strategic Vision (Viatris)
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Pipeline Overview
Growth in Complex Generics (Gx), Biosimilars, and Global Key Brands
“Bring Mylan Growth Products to Upjohn Growth Markets”
Remember ‘Key Consideration 2’?
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Merger- Strategic Vision (Viatris)
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OSD- oral solid dosage (tablets, capsules)
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Merger- Strategic Vision (Viatris)
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Near Term Expectations
Standalone business execution
Realize significant annual cost synergies
Increase free cash flow (Remember Key Consideration 2 involving Mylan business position/ stock price?)
Long Term Expectations
Realize significant revenue synergies
Product portfolio development and external business development initiatives
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Key Consideration 3
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Would Upjohn become embroiled in Mylan’s legal issues, reducing the value of the assets contributed by Upjohn?
Would Mylan be able to put its legal issues in the rearview mirror?
Can the new company achieve synergy and growth?
2016 EpiPen pricing controversy, prices raised from $100 in 2007 to $600 in 2016; company was issued a subpoenas as part of a criminal investigation into price collusion;
2017 civil investigation named Mylan’s president in a price-fixing lawsuit
2019, Mylan was one of several generics manufacturers named in another federal lawsuit alleging drug price-fixing
These issues are believed to have had some impact on stock price
Mylan continues to stand by its innocence as a company, and the individuals named in the suits
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Key Consideration 3
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Conclusion- Pfizer reported to Bloomberg (CEO Albert Bourla) “assessed that the defense exposure is a reasonable exposure” and there were “no issues to proceed.”
Pfizer legal team has assessed the potential impact of Mylan pending cases, and have from a risk perspective continued to move forward with the merger.
Robert Coury (Executive Chairman, Mylan); Michael Goettler (CEO, Pfizer); Rajov Malik (President, Mylan)- neither Mylan leaders were named among the defendants in any cases
New CEO from Pfizer has been with Pfizer for a number of years and has a very impressive track record; also serves as board member for PSI (Population Services International), a global health organization
Based on previous slides, apparent synergies and a clear strategy are laid out and appear to be strategically viable (strong pipeline coupled with strong market presence, over hundred manufacturing sites, key financial gains on debt ratio and cost savings)
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Final Thoughts
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Upjohn’s Products Coupled with Pfizer’s Markets- WIN
Based on the information available, the overall merger strategy makes logical sense.
Pfizer Upjohn has been able to capitalize in global markets that do not operate under the same principles as the U.S. regarding biosimilars/Gx (generics)- therefore, if those commercial teams can continue to execute with the new line of Mylan offerings, there is reason to believe in the projected successes of this merger.
The U.S. market seems to be trending unfavorably towards generic drug companies (as evidenced by Mylan’s stock decline), so the expansion into different markets is key.
Pfizer Upjohn by all appearances seems to have a commercial infrastructure in place to support Mylan’s robust pipeline.
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Q & A
THANK YOU FOR YOUR TIME AND ATTENTION!
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Research Links
https://investor.viatris.com/static-files/baefb444-9758-4639-9e95-d27cccf92b54
https://investor.viatris.com/static-files/3d5048ba-d9af-41b0-bd51-803dde58ed1f
https://www.foxbusiness.com/markets/pfizer-sales-fall-on-loss-of-drug-exclusivity
https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_PFE_2019.pdf
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