Cecil drugmaker Mylan continues to angle for acquisition
A merger frenzy in the pharmaceutical industry could push valuations to unrealistic levels as companies enter bidding wars.
But so far, it doesn't look like the flurry of deals by big drugmakers will force Mylan Inc., a midsized company, out of the market, analysts said.
Mylan, the world's third largest maker of generic drugs, last week bid $6.7 billion for Swedish drugmaker Meda AB, which on Monday rejected the offer — the second time Meda has declined Mylan's advances.
Whether Cecil-based Mylan will come back a third time remains unclear. The company, which has said it wants to complete a “substantial” transaction this year, declined to comment.
But on a conference call on Thursday with analysts to discuss the company's first-quarter earnings, CEO Heather Bresch said Meda wasn't the only potential deal the company was exploring.
“That's just one of many out there that we believe would be complementary to our platform,” she said.
Pfizer Inc., Actavis Plc, Valeant Pharmaceuticals, GlaxoSmithKline and Novartis either announced deals or attempts at acquisitions in recent weeks ranging in value from $25 billion to $100 billion.
“It's become a frenzy right now,” Sterne Agee analyst Shibani Malhotra said.
Driving the interest in deals is a desire among drug companies to boost their product offerings, expand geographically and lower tax rates by investing cash they have overseas into acquisitions.
“A lot of these companies have a pretty large amount of cash held overseas. ... If they repatriate the cash, they face a large tax bill,” said Jeff Loo, an analyst with Standard & Poor's Capital IQ.
“A lot of these companies could reincorporate their headquarters overseas and save on taxes,” he said. “I would suspect that's part of the rationale as well.”
Pfizer, the world's largest pharmaceutical company, offered about $100 billion to take over British drugmaker AstraZeneca, a bid that was rejected. Pfizer has said that one of the goals of the deal would be to lower its tax bill.
Actavis, a Mylan competitor in the generic business based in Ireland, agreed to buy Forest Laboratories Inc. for $25 billion in February. New York-based Forest said on Monday that it would acquire Furiex Pharmaceuticals for $1.1 billion, a deal that isn't expected to alter Forest's agreement with Actavis.
Valeant Pharmaceuticals teamed with a billionaire hedge fund manager in a $45.7 billion bid to buy Allergan Inc., maker of the Botox cosmetic treatment. But Allergan is reportedly shopping itself to other pharmaceutical companies.
And last week, GlaxoSmithKline, Novartis and Eli Lilly, three of the world's biggest drugmakers, announced a complex series of trades, purchases and partnerships worth more than $28 billion.
While Mylan's proposal for Meda is small by comparison, the company is no less influenced by the market dynamics around it.
If its competitors are able to lower tax rates through overseas deals, then Mylan will feel pressure to do the same, Malhotra said.
“No one wants to be the one left behind,” she said.
Bresch told analysts that tax rates aren't driving Mylan's acquisition strategy.
The company recorded an income tax provision of $35.1 million in the first quarter, up from $31.7 million a year ago.
The Meda deal would give Mylan a greater presence in Europe and developing countries and broaden its product offerings in dermatology and allergy medications, analysts said.
“From a strategic and product point of view, it does seem to be a pretty good fit,” said Loo, who noted that a $6.7 billion offer doesn't seem out of line, given Mylan's cash generation and rising stock value.
The company generated $268 million in cash from operations in the first quarter, compared to $88 million a year earlier.
Its stock price has nearly doubled in the past 12 months, closing at $49.74 on Thursday, up from about $27 a share a year ago.
Debt remains fairly cheap because interest rates are low, and Mylan's climbing stock price gives it flexibility to partly pay in shares, Loo said.
“Based on their stock run-up, they could use equity,” he said. “They could tap the debt markets for some financing as well.”
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or email@example.com.
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