Robert J. Coury, Mylan's current chairman, will be executive chairman of the new firm.
Mylan shares jumped 20% to $22.10, while Pfizer shares slipped almost 2% to $42.34 in early trading on Monday. Pfizer was down 0.8 per cent to US$42.76. The new Upjohn business posted revenue of $2.81 billion, down 11%.
The agreement is set to be finalized in 2020, with a new name being penned at the close of the deal. The deal would let Pfizer focus its considerable muscle on making new medicines, while Mylan would get a financial lifeline after a rocky stretch. For Upjohn, it provides diversification and a pipeline.
Pfizer, which had $54 billion in sales in 2018, had previously pondered both industry-shaking mega-deals and a potential breakup.
Pfizer will separate its off-patent drugs unit, Upjohn, in a tax-free spinoff and combine with Mylan.More news: World Cup victor Archer in England squad for Ashes opener
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Mylan said Chief Executive Heather Bresch, who took the helm in 2012 and faced intense political pressure over the high price of EpiPen, will retire after the deal closes. Pfizer would name three. Goettler will also get a seat, for a total of 13 members.
Mylan investors embraced the deal, driving up the stock 14.4% to $21.11 a share around 9:40 a.m. PDT. EpiPens were added to the FDA's drug shortage list two years after Mylan increased the price of the product by more than 400%, leading to public outrage. Pfizer is up 12 per cent in the same period and is worth $240 billion. Pfizer spent several years unsuccessfully trying to drugmakers based in lower-tax European countries so it could move there on paper and reduce its USA tax bill, finally giving up after the US tax overhaul last year changed the economics of such a maneuver. Second-quarter adjusted earnings were $1.03 a share, topping the 95 cents average of Wall Street's estimates compiled by Bloomberg. Based on Monday's share price, the company is worth around $11 billion. Sales in the second quarter totaled $13.2 billion, down 2% from the same quarter past year.
Likewise, years of pressure from wholesalers to reduce prices for generic drugs, which comprise most of Mylan's portfolio, have crimped its profits and driven its share price down 50% in the past year. In some cases, companies have been able to charge no more than the cost of production for certain medications.
Cash flows would be directed at repaying debt that matures in 2020 and 2021. In recent years, it has spun off the animal-health business and agreed to merge the consumer health arm into a new venture with GlaxoSmithKline Plc. The company and the Food and Drug Administration earlier this year extended the expiration dates of some devices in order to manage the shortfall.
Mylan sells a broad mix of generic pills and shots for infectious diseases and heart conditions, plus the EpiPen auto-injector for stopping allergic reactions, a product Pfizer manufactures for Mylan. The Meridian business has formed part of the negotiations on the deal, a person familiar with the matter said.