Mylan says no to a merger with Teva, and Perrigo says no to Mylan

Last year, the financial community was fixated on the non-deal between Pfizer and AstraZeneca; this year’s candidate for an M&A telenovela is Mylan/Teva. Leading up to the April 27 offer from Teva to acquire a direct competitor, Mylan (which, by the way, is now headquartered in the Netherlands by way of its 2014 tax-inversion acquisition of assets from Abbott), Mylan had put in two bids to acquire Perrigo, reportedly not just for its inherent business value but also as a defense against any other company’s attempt to acquire Mylan.

The latest bid, on April 29, was for around $35 billion in cash and stock. Perrigo, based in Ireland, promptly reject that offer, as it had the previous ones, saying that it “significantly undervalued the Company and its future growth prospects.” Perrigo operates primarily in OTC products and some generic business. A combined company would gross around $15 billion, says the Wall Street Journal.

That rejection was much less colorful than Mylan’s of Teva’s offer, in which Robert Coury, Mylan executive chairman, wrote an unusually detailed and unusually personal assessment of Teva’s bid, mentioning the board-level turmoil and relatively poor economic performance of the company in the past couple years. "We do not wish to make Teva's problems Mylan's problems, or to inflict them on Mylan's shareholders and other stakeholders," he said. (Interestingly, the fate of one drug—Teva’s branded Copaxone treatment, for which Mylan is preparing a generic competitor—figures in these merger discussions, as a key source of net revenue for what is mostly a leading generics manufacturer.) Coury also pointed out that while Mylan is significantly invested in India’s drug manufacturing infrastructure, Teva has been publicly critical of India’s capabilities; a merger would “bring Teva’s dysfunctional culture to the region, and "disrupt the core of our business." There are also overlapping pipelines: Gianfranco Zeppetelli, analyst at GlobalData (London), says the combined companies would have more than 400 pending generic drug applications at FDA.

The backdrop to all this asset shuffling, which is affecting branded as well as generic companies (according to Bloomberg News, there were a record $220 billion in pharma deals announced in 2014), is the consolidation of buyers of drugs. Specifically with reference to generics, a large portion of global generic sales is now controlled by the US’ Big Three (counting in the AmerisourceBergen relationship with Walgreens-Alliance Boots). In the US market, more and more doctors’ practices are being acquired by health systems, and those health systems themselves are aligning into national, or at least regional-dominant organizations. The consolidation among pharmacy benefit managers (PBMs), such as the recent announcement of United Health and Catamaran, further consolidates the key buyers of drugs.

The countervailing trend to this consolidation is the wide-open market for biopharma IPOs in the US; with the market at all-time highs and with credit relatively inexpensive, the IPO window is letting in quite a breeze.