A deal talked about in the past week became official on Monday.
Pfizer and Mylan are merging their off-patent drug businesses to boost sales growth and create a global seller of lower-priced medicines.
The talks were first reported in the The Wall Street Journal.
The discussion comes in the wake of slower sales brought on by lower-priced competition and the loss of patent protection.
Pfizer is the maker of the male-impotence drug Viagra and Lipitor cholesterol pills, while Mylan is known for the EpiPen emergency allergy shot.
The new company, to be based in the United States and incorporated in Delaware, will be run by Pfizer's unit President Michael Goettler, who will become the chief executive officer.
Mylan CEO Heather Bresch will retire after the deal closes and its Chairman Robert Coury will be the executive chairman of the new company.
Mylan shares jumped 20 percent, while Pfizer shares slipped in early trading on Monday.
"Over the past year and a half, I have spent a lot of time speaking with and listening attentively to our shareholders. Today's announcement builds upon many of those meaningful conversations and represents a transformative move for Mylan," said Robert J. Coury, Mylan Chairman. "The new company, which combines the unique assets of Mylan with the iconic brands of Pfizer's Upjohn business, will not only accelerate our mission to serve the world's changing health needs, but also further unlock the true value of our platform while delivering attractive returns to shareholders for many years to come."
Meanwhile, Pfizer reported second-quarter net income of $5.05 billion, or 89 cents per share, up from $3.87 billion, or 65 cents per share, a year earlier. Earnings, adjusted for non-recurring gains and gains related to mergers and acquisitions, amounted to 80 cents per share in the latest quarter, 3 cents better than Wall Street analysts expected.