How Lucrative Is Mylan’s Acquisition of Perrigo?
Positive Reaction to Mylan–Perrigo Deal Proposal (Part 2 of 5)
Mylan and Perrigo
Pharmaceutical company Mylan’s (MYL) acquisition of Perrigo (PRGO) is expected to enhance its growth prospects. To compete in the generic drug industry, size and scale are very important. This acquisition would help Mylan almost double its current size. It also fits strategically with Mylan’s vision to reach 7 billion customers.
Mylan expressed its interest in this move in its fiscal 2014 earnings release. The acquisition would be targeted to diversify across therapeutic areas, dosage forms, and geographies. The acquisition of Perrigo would expand its product portfolio with the addition of store-brand over-the-counter drugs. It will also expand its geographic presence, especially in Europe.
Benefits of the acquisition
The combination of Mylan and Perrigo will generate a diversified revenue stream. Perrigo has capabilities in extended topical generics primarily. Its portfolio also includes select controlled substances, injectables, hormones, oral solid dosage forms, and oral liquid formulations. Injectables are Mylan’s focus area.
Perrigo’s specialty segment focuses on the treatment of MS (multiple sclerosis) with the drug Tysabri, which it took on when it acquired Elan in 2013. This would complement Mylan’s efforts to develop a generic version of Copaxone, Teva’s (TEVA) flagship drug.
Perrigo network
Perrigo offers a commercial platform that could be used for cross-selling Mylan’s products via new channels. Perrigo’s sales infrastructure was further enhanced with the acquisition of Omega Pharma that added 211,000 pharmacists, 105,000 retail stores, and 4,000 para-pharmacies to its network.
Because of the Omega acquisition, Perrigo would also expand Mylan’s geographic reach across Europe. Omega has a commercial presence in more than 35 countries including the Netherlands, Nordics, Russia, Portugal, Spain, Italy, Germany, and France. Perrigo sales are less geographically concentrated as a result:
US – 57% compared to 81% prior to the acquisition
rest of the world – 43% compared to 19% prior to the acquisition
Any profitability that may be derived from this acquisition may be shared by investing in pharmaceutical ETFs such as the iShares U.S. Healthcare ETF (IYH) and the Health Care Select Sector SPDR Fund (XLV).
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