Analyst: New obstacles for Perrigo's businesses could thwart Mylan's deal logic

Some analysts have never been all that keen on Mylan's ($MYL) hostile quest for Perrigo ($PRGO). But some forthcoming obstacles for Perrigo's businesses now have at least one questioning the deal's logic even further.

"The more we look at the Mylan-Perrigo transaction, the less we like it," Bernstein analyst Ronny Gal wrote in a note to clients on Wednesday, pointing out that he's "increasingly seeing challenges on the horizon for some of the Perrigo businesses, which lead us to question the rationale" for the tie-up.

Take the Irish pharma's semisolid generics business, which generates about 30% of its operating profits. Perrigo, along with Novartis' ($NVS) Sandoz and Taro, have been running the show in that department, allowing the trio to increase prices. But recently, the FDA has picked up the pace in reviewing new drugs, and the way Gal sees it, new entrants could hurt Perrigo's pricing power. "The point of 'pain' for generic niche businesses is when they go from stable oligopolies to multi-player businesses," he noted.

Perrigo also derives about 20% of its operating profits from royalties on Biogen's ($BIIB) Tysabri, which could soon be facing stepped-up competition. First off, Roche's ($RHHBY) pipeline challenger, ocrelizumab, recently delivered Phase III results that suggest it's "roughly equivalent" to Tysabri in efficacy--but with a more convenient dosing regimen and a mechanism that could cause fewer cases of deadly brain disease PML. Generics of Novartis pill Gilenya now look more likely for 2019 thanks to a recent patent invalidation, too, making the outlook for Tysabri seem "a lot more questionable now than it did just a few weeks ago," he wrote.

Because of these challenges, Perrigo shareholders shouldn't expect a white knight to swoop in and grab the company out of Mylan's clutches, Gal cautioned. But Perrigo could make a buy of its own in the coming weeks, the quality of which "will likely determine the outcome" of Mylan's tender offer--a proposal consisting of $75 in cash and 2.3 of its shares in return for each Perrigo share that investors have been weighing since mid-September.

Special Reports: Top 10 generics makers by 2012 revenue - Mylan | Pharma's top 10 M&A deals of 2014 - Mylan/Abbott Laboratories established products

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