Drugmaker Mylan Takes Part In Pharma Feeding Frenzy

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I n a rapidly consolidating industry, you're either hunter or prey. Mylan is the former.

Mylan ( MYL ) makes generic and branded drugs to treat illnesses of the cardiovascular and central nervous systems and other disorders. It operates two segments: Generic and Specialty.

The Generic unit makes generic or branded generic products in tablet, capsule, injectable or transdermal patch form, and active pharmaceutical ingredients, or APIs. Its Specialty segment is built around EpiPen, an adrenaline self-injection device for treating anaphylaxis.

Mylan's product lineup will become a lot bigger once the company finalizes acquiringAbbott Laboratories ' ( ABT ) branded specialty and generics business in developed markets outside the U.S.

The $5.3 billion buyout, announced in July, will bring Mylan Abbott brands including Creon for patients who can't digest food properly, Brufen to treat pain, and the Influvac influenza vaccine. The acquired assets produce nearly $2 billion in revenue in the markets where Mylan will sell them.

Tax Plan: Let's Go Dutch

The deal recently received approval from the European Commission and is expected to close this quarter. Upon closing, Mylan will move its corporate address to the Netherlands as part of a tax inversion process designed to reduce its tax bill.

Even as that deal nears completion, Mylan is busy buying more businesses. This month it signed a deal to acquire women's health care units from India's Famy Care for about $750 million plus contingent payments up to $50 million.

In a statement announcing the transaction, expected to close in the second half of 2015, Mylan said that the Famy Care assets will accelerate its growth in the global women's health care segment and complement its Abbott businesses, which include a lineup of women's health care portfolios. Famy Care focuses on generic oral contraceptives.

Mylan's buying binge is part of an overall strategy to expand into new markets and gain the kind of scale needed to compete in a consolidating industry, analysts say.

"Mylan's already one of largest generic companies in the world. Now they're trying to get bigger in Europe, and Abbott has a whole bunch of established products in Europe," CRT Capital Group analyst Timothy Chiang told IBD.

Mylan is one of several pharma firms to announce major deals in recent months.

Drugmaker Deals Just Sealed

On Monday,Bristol-Myers Squibb ( BMY ) said that it would buy privately held Flexus Biosciences for as much as $1.25 billion to broaden its cancer drugs lineup. Sunday, Canada'sValeant Pharmaceuticals ( VRX ) said that it would buy smaller U.S. rivalSalix Pharmaceuticals ( SLXP ) for $158 a share, with a total enterprise value of $14.5 billion.

On Saturday, Irish drugmakerShire (SHPG) said it completed the $5.2 billion acquisition ofNPS Pharmaceuticals (NPSP), a N.J.-based maker of drugs for gastrointestinal disorders.

That followedActavis' (ACT) announcement in November that it would spend $66 billion to acquire Botox makerAllergan (AGN) after the latter firm spurned a hostile takeover from Valeant. The Allergan deal came after Actavis' $28 billion buyout of Forest Laboratories earlier in 2014.

Another big deal came in August, whenRoche Holding (RHHBY) agreed to buy InterMune for $8.3 billion. Smaller deals have been announced recently byBiogen Idec (BIIB) and alsoTekmira Pharmaceuticals (TKMR).

Prescription For Growth

Mylan's buyouts should help the company kick its financial growth into higher gear, analysts say.

Prior to its 2014 third quarter -- when the company logged a 41% year-over-year rise in earnings and an 18% gain in revenue -- Mylan had a six-quarter run of single-digit revenue gains or declines. Three times during that span, it posted single-digit EPS gains or declines.

The sluggish growth, analysts say, was partly the result of unfavorable currency exchange rates, especially in Europe.

"Currency is a headwind for any company right now, and it has been a headwind in Europe for awhile," analyst Chiang said.

Mylan executives did not respond to requests for comment. In a statement announcing the Famy Care deal, Mylan said that the transaction should instantly add to its adjusted EPS when it closes.

In a recent research note, JPMorgan analyst Chris Schott called the Famy Care buyout "a strategic transaction" for Mylan.

"The deal will build upon the companies' North American partnership while also leveraging Mylan's improved tax structure and ex-U.S. branded generics platform," Schott noted.

Separately this month, Mylan also announced a partnership withTheravance Biopharma (TBPH) to develop and commercialize Theravance Biopharma's drug candidate TD-4208 for chronic obstructive pulmonary disease (COPD).

As part of the alliance, Mylan will pay $15 million upfront along with a $30 million equity investment in Theravance Biopharma. Mylan also promises up to $220 million in milestone payments if the drug reaches the market successfully. TD-4208 is set to begin Phase 3 testing.

In a note, Citigroup analyst Liav Abraham calls the collaboration "interesting," given the "unmet medical need for severe COPD patients. The success of Mylan/Theravance with respect to this product will be dependent on both clinical data as well as marketing."

Marketing could be a challenge, Abraham said, "given Mylan's lack of material presence in the U.S. branded respiratory space vs. other, more established players. Notwithstanding this, we await additional clinical data on this program in order to more comprehensively evaluate the opportunity."

Mylan gets a best-possible IBD Composite Rating of 99 and belongs to the Medical-Generic Drugs group, which currently ranks No. 4 of 197 industries tracked.

The company is due to report Q4 results on March 2. Analysts polled by Thomson Reuters expect earnings to climb 35% from the prior year to $1.05 a share. Revenue is seen rising 14% to $2.07 billion.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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