Local officials sifting through meaning of Mylan/Pfizer merger

The announcement that Pfizer, the country’s largest drug-maker, will absorb Mylan, based in Washington County, leaves local officials with more questions than answers.

The two pharmaceutical companies said Monday they’ll combine Mylan, valued at $10 billion, with Pfizer’s Upjohn, which sells name brands from Viagra to the cholesterol medication Lipitor that have lost patent protection.

Pfizer is spinning off a part of the business that is not only stagnant but also in decline, according to David Kaplan, director for S&P Global Ratings.

“I think this started off on the Pfizer side, where they said ‘We’ve got this business (Upjohn) and we want to get rid of it and pair it up with another company that might benefit,’ ” said Kaplan. “Mylan was a good candidate for that because there is a certain synergy. They’re going to create a new company with a new name. That was the driver that led to this.”

While the immediate reaction of some Washington County lawmakers is that the merger seems to be a good thing, the consensus is that it’s too early to tell exactly where it will lead.

“It looks like it’s going to be positive. It’s going to be a good company. It’s going to be more specialized with their off-patent drugs they are going to be involved with. But, right now, we’re speculating like everybody else,” said Washington County Commissioner Larry Maggi. “We’re still mixed at how we view this. Our economic development people are still scrambling to get the real meaning of it.”

Maggi said he has concerns while acknowledging that Mylan has had a rough couple of years related to the price of its EpiPen, an auto-injector used to control life-threatening allergic reactions. Mylan was heavily criticized for raising its price after acquiring it in 2007. CEO Heather Bresch was brought before Congress two years ago to respond to inquiries about EpiPen, the cost of which quintupled to $600 for two doses.

As part of the deal, Bresch is retiring from the company.

EpiPens have been in short supply for the past year because of quality problems and upgrades at the Pfizer factory where they are manufactured under an agreement with Mylan.

Maggi said the merger with Pfizer should help Mylan unsully its image.

“The public perception was tarnished by that, and I think they’re still struggling with that somewhat. So, that is where I see the silver lining. That may resurrect some of their reputation.”

Mylan built a new corporate headquarters in Southpointe in 2012, indicating a commitment to remain in the Pittsburgh area. But with Pfizer absorbing Mylan, there is not necessarily a guarantee that the company will stay put.

“We’re very happy that Mylan chose to locate its executive offices in Southpointe,” said Washington County Commissioner Diana Irey Vaughan. “They’ve brought with them family sustaining wages. They are a large employer. They’ve been tremendous community partners in Washington County and we are hoping that with the partnership with Pfizer they stay here because they have made a huge investment in our county.”

The new company will be incorporated in Delaware and run operations in Pittsburgh, Shanghai and Hyderabad, India.

Some of the unanswered questions at this point include whether this merger will mean more jobs in the area, or if Pfizer employees are being shifted over here. If Pfizer employees do come, will that mean a loss of jobs?

“We haven’t had communication on the subject yet but we would welcome a meeting with our leadership in Washington County and the new executive team of Pfizer,” said Vaughan.

Cecil Township Manager Donald Gennuso declined comment for now based on a lack of information, he said.

Matthew Todd, associate director with S & P ratings, said it seems likely that Pfizer/Mylan will remain in Washington County for the foreseeable future.

“This is a spin-off from Pfizer. So, at least from the outset, I would assume the spin-off company, Upjohn, would be using Mylan’s infrastructure to do the back-office administrative functions,” said Todd.

Mylan has flirted with mergers before. The company wanted to purchase the Irish generic drug maker Perrigo in 2015 but ended up backing away. Later that year, Teva Pharmaceutical, a company headquartered in Israel, wanted to buy Mylan, but Mylan turned down the proposal.

Todd said the timing was right for the company to make this particular deal because there are immediate benefits for Mylan in the transaction.

“This is immediately positive for their credit metrics and cash flow relative to the amount of debt involved in the transaction. And it provides greater exposure and access to international markets, especially in China,” said Todd.

Mylan did not immediately respond to requests for comment.