MERGERS AND ACQUISITIONS IN THE GENERIC DRUG SECTOR: THE IMPACTS OF THIS FORGOTTEN FACTOR

ON PRICING AND SHORTAGES

Marc-André, PhD, Associate Professor, School of Public Policy and Administration at Carleton University

ma_gagnon@carleton.ca Twitter @MA_Gagnon

Karena Volesky, MA-MSc, PhD student in Epidemiology at McGill University

karena.volesky@mail.mcgill.ca Twitter @KarenaVolesky

DISCLOSURES

We have no relationships with commercial interests

This research was funded by the Canadian Institutes of Health Research

CONTEXT

Generics made-up almost 90% of all dispensed drugs in the USA in 2014 1

Shortages and increasing prices are recurring issues

Patent cliff and downward pressure on generic drug prices since 2010

1 Turk S. Generic Pharmaceutical Manufacturing in the US. IBIS World Industry Report, 2015 32541b.

CONTEXT

CONTEXT

Record levels of M&As reported in pharma sector for 2014–15

Pursue M&As to: Achieve economies of scale and scope

Gain corporate control

Acquire specific assets

Buy dying or weak companies

More….

Image from: http://blog.telemerge.ca/blog/bid/379981/Smoothing-out-the-Rocky-Path-of-Mergers-Acquisitions

OBJECTIVES

Present data on the number and magnitude of M&As in the generic pharma sector over a 21-year period for three regions:

1. Global

2. USA

3. Global excluding the USA

Discuss the potential impacts on pricing and shortages

APPROACH

Bloomberg Finance L.P. Generic drug firm being taken over Completed M&A deals 1995 to 2016 Global, USA, and global excluding the

USA Not all deal values are released Number and announced value Largest deals US$, not adjusted for inflation

Image from: https://www.reddit.com/r/MechanicalKeyboards/comments/211gvl/this_keyboard_costs_24000_per_year_to_own_a/

SAMPLE*

*Dollar values are in USDs and represent the total announced value of M&A deals

M&As with global pharmaceutical targets from

1995 to 2016 7,011 deals

$2,575.7 billion (bn)

M&As with global generic targets from 1995 to 2016

379 deals $255.0 bn

M&As with global generic targets completed from 1995

to 2016 345 deals $160.0 bn

Excluded: Terminated 17 deals, $42.85 bn Withdrawn 10 deals, $51.73 bn Pending 7 deals, $0.11 bn

Excluded: Terminated, withdrawn and pending deals (418 deals worth $858 bn)

VALUE OF GLOBAL GENERIC VERSUS ALL PHARMA M&AS (%)

90.7 98.2 86.6

65.1

9.3 13.4 34.9

All years 2014 2015 2016

Non-generic Generic

$1.72 trillion

$105.1 billion

$250.3 billion

$126.3 billion

NO. OF COMPLETED M&AS WITH GENERIC TARGETS

05

1015202530354045

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Num

ber o

f dea

ls

Global USA Excluding USA

VALUE OF COMPLETED M&AS WITH GENERIC TARGETS

05

101520253035404550

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Anno

unce

d va

lue

in U

SD b

illio

n

Global USA Excluding USA

$43 billion in M&As with

USA generic targets

FIVE LARGEST DEALS WITH GENERIC TARGETS

Target Acquirer Announced $ value (in billions) Completion date

1 Allergan’s generic drug business

Teva Pharmaceutical Industries Ltd 39.56 Aug 2016

2 Hospira Inc Pfizer Inc 16.81 Sept 2015

3 Nycomed A/S Takeda Pharmaceutical Co Ltd 13.73 Sept 2011

4 Par Pharmaceutical Holdings Inc Endo International PLC 8.09 Sept 2015

5 IVAX Corp Teva Pharmaceutical Industries Ltd 7.58 Jan 2006

SUMMARY

M&As played a minimal role in the generic sector prior to 2000

Trend of M&As since 2004

2015–16 experienced record levels of M&As – USA

Our findings are consistent with industry reports that pharmaceutical companies have turned to M&As to grow

LIMITATIONS

“Not announced” values are unknown underestimated $ value

No direct association established

Too early to report specific impacts of very recent M&A activity

INTERPRETATION

2010 patent cliff increased generic utilization while governments exerted downward pressure on prices

Appearance of consolidation, two years after price increases for many generics in the USA, but growing number of companies from 2010 to 2015:

Herfindahl-Hirschman index at 0.021 (threshold is 0.25)

Largest manufacturer (Pfizer Global Established Products) controls 9% of global market

In some therapeutic categories, concentration plays a role in increasing prices; albendazole, dextroamphetamine, and pyrimethamine

DISCUSSION

Record level of M&As appeared AFTER two years of price increases

M&As not a root cause of price increase, but exacerbating factor

Focus on the USA not linked to “need to enter emerging markets” or “vertical integration with manufacturers of raw ingredients”

M&As linked to increased prices and drug shortages: relying only on “market forces” (or demanding increased prices) is no longer an option

POLICY IMPLICATIONS

Governments should consider implementing a procurement process with tenders including clauses to ensure a safe and consistent supply

Establish a public generic manufacturer, like in Sweden or Brazil

Competition bureau should investigate current trends of how M&As can allow unilateral price increases

Develop special pathways for foreign or new manufacturers to promote competition

Economic structures of the generic sector are shifting and countries must adapt their regulations

THANK YOU

QUESTIONS/COMMENTS?