Mylan will buy the outside-U.S. branded generic drug business of Abbott Laboratories for about $5.3 billion, with Abbott in return taking a short-term, roughly 21% stake in a new company that will combine the business with Mylan’s existing operations, the companies said today.
The new, publicly traded company will combine with Pittsburgh-based Mylan, then re-domicile in the Netherlands, where it would take advantage of that nation’s lower corporate tax rate—the latest in a string of “tax inversion” deals within biopharma over the past couple of years. The new Mylan’s tax rate would drop from 21% to the high teens—and because it is a new entity, the deal that created it is called a “spinversion.”
Abbott will sell its branded generics operations in Europe, Japan, Canada, Australia, and New Zealand. Those operations—which employ about 8,300 people, including about 2,000 sales reps in more than 40 non-U.S. markets—include manufacturing facilities in France and Japan, as well as a portfolio of more than 100 specialty and branded generic pharmaceutical products in five major therapeutic areas—cardio/metabolic, gastrointestinal, anti-infective/respiratory, CNS/pain and women's and men's health.
Key products in the portfolio to be acquired, according to Mylan, include digestion aid Creon® (pancrelipase), the seasonal flu vaccine Influvac®, aspirin alternative Brufen® (ibuprofen), constipation drug Amitiza® (lubiprostone) and Androgel® (testosterone gel), among others. Mylan said the branded generics will increase its offerings to more than 1,400 specialty and generic products.
“The acquisition of this business is absolutely the right next strategic transaction for Mylan as it builds on our strong momentum, expands and further diversifies our business in our largest markets outside of the U.S., and clearly positions Mylan for the next phase of growth through enhanced financial flexibility and a more competitive global tax structure,” Mylan Executive Chairman Robert J. Coury said in a company statement.
Mylan CEO Heather Bresch added that the expansion of its portfolio through the deal with Abbott “will help us drive the continued expansion of EpiPen® Auto-Injector globally and enable us to more effectively launch important growth drivers, such as respiratory and biologics.”
Mylan said it expects the branded generics to generate $1.9 billion in annual sales when the deal is completed—something Abbott said was expected to occur during the first quarter of 2015.
That projection is in line with the “approximately $2 billion” in annual sales reported by Abbott for ex-U.S. branded generics—and would boost Mylan’s annual revenues by almost 30% from the $6.91 billion reported for 2013. Following completion of the deal, Mylan said, it expects to have approximately $10 billion in pro forma 2014 sales, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of about $3 billion.
Abbott finished last year with $21.8 billion in total revenues and 69,000 employees.
Mylan also said it expected to wring out more than $200 million in pre-tax cost-cutting or “operational efficiencies” by the end of the third full year after the deal is completed.
Abbott said the deal will enable it to reposition branded generics into a business focused on the world’s fastest-growing regions. Abbott made a move in that direction back in May, when it said it will acquire Chilean-based CFR Pharmaceuticals for up-to about $2.9 billion, plus assumption of about $430 million in debt. Abbott said at the time it expected the CFR acquisition to add about $900 million to its annual sales in 2015, the first full year after completion of the deal, which is expected by the end of the third quarter.
“Our branded generics pharmaceuticals business will focus on emerging markets, where demographic changes and increasing access to healthcare are expected to drive sustainable growth,” Abbott Chairman and CEO Miles D. White said in a separate statement by his company. “”This transaction provides Abbott with additional strategic flexibility as we continue to actively manage and shape our portfolio, reflecting our commitment to long-term, durable growth.”
Abbott, which will hold 105 million shares in the new Mylan, added that it did not expect to be a long-term shareholder in that company, and will ultimately use net proceeds from the sell-off to “opportunities that would be accretive to earnings over time.”