That Teva would declare its interest in Mylan was a foregone conclusion. The consummation of any such deal is far from certain.
An agreement on price would probably get investors in both camps on board, but these are not the only interested parties that need winning over. Multiple business overlaps create significant antitrust issues, which again can probably be ironed out after some negotiation (see analysis below). However, concerns about mounting generic drug prices, particularly in the US, are only going to add to regulatory scrutiny, and ultimately it is this issue that could present the final threat to this deal.
On a top-line level this merger would create a hugely dominant player in the global generics space, as the analysis below shows. With projected combined sales of $20bn in 2020 the new entity would control about a fifth of the market, according to EvaluatePharma data, almost double the share of its nearest competitor.
Teva essentially rebuffed anti-trust concerns yesterday, saying it saw no “significant regulatory hurdles” and expressing confidence that a transaction could be structured that would not contain “material impediments to closing”. For its part Mylan has said it doubts a combination could obtain clearances – although neither company’s stance is surprising, given their respective game plans.
|The world's biggest generics companies, pre and post any merger|
|WW generic sales ($bn)||Market share|
Still, Teva’s statement is certainly bold, as the table below shows. A look at only the top 10 selling products in 2020 reveals considerable overlaps to the businesses.
The copycats each company is developing against the other’s flagship product would have to be sold – these should easily find willing buyers – although it is worth remembering that Teva would then be left with two aging franchises with a limited shelf life, and clear competition on the horizon. But the cross overs in therapy areas extend much further - Umer Raffat at Evercore ISI estimates that divestures worth $1.3bn might have to be made.
Admittedly this is probably not a sizeable enough proportion of the combined business to threaten the merger’s economic viability, but it is an issue for investors to bear in mind.
However, this could all look like tinkering around the edges when compared to the issue of soaring generic drug costs. In the US, this has aroused sufficient concern to prompt the Department of Justice to subpoena generics firms, an Attorney General-led investigation in Connecticut into digoxin charges, and last but not least a Congressional investigation into escalating generic prices.
In the cross hairs
Teva of course has other big hurdles ahead of it before this issue really comes into play.
First it has to get Mylan to play ball and negotiate – something that the company’s management team have made clear is not going to happen easily – and failure to agree on a price looks highly likely. Pushing on with a hostile bid will only be made harder by the poison pill in place, a particularly effective vehicle allowed under Dutch corporate laws, where Mylan recently incorporated itself.
And while Perrigo last night officially rebuffed the takeover approach from the Netherlands' newest native, this can also be considered an on-going bid situation, and a potential deal breaker for Teva.
So there are many reasons why US Congress and other lawmakers might never have to seriously consider the ramifications of a Teva-Mylan merger. But should it get that far it will be firmly in the cross hairs of a red hot political issue, and politicians in the US and Europe have demonstrated recently that they are not afraid to weigh in on corporate takeovers will a “moral” story line.
The Pfizer and AbbVie management teams will have a few tales to tell about how that feels.
|Top 10 products of merged Teva-Mylan - by forecast sales in 2020|
|Annual Sales WW ($m)|
|MGR001 (Advair generic)||Mylan||Asthma; COAD/COPD||-||620|
|DuoResp Spiromax (Symbicort generic)||Teva||Asthma; COAD/COPD||9||551|
|ProAir HFA (Ventolin generic)||Teva||Asthma||478||288|
|Fentanyl Transdermal System (Duragesic reformulation)||Mylan||Pain - cancer-induced, chronic||316||260|
|QVAR (Becotide generic)||Teva||Asthma; COAD/COPD||286||258|
|Glatiramer Acetate (Copaxone generic)||Mylan||MS agent||-||231|
|Granix (Neupogen biosimilar)||Teva||Neutropaenia||64||193|
|Zecuity (Imitrex reformulation)||Teva||Migraine||-||152|
|Vibex Epinephrine (EpiPen generic)||Teva||Anaphlyaxis||none available|