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/smoothingout-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* 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deals $255.0 bn M&As with global generic targets completed from 1995 to 2016 345 deals $160.0 bn Excluded: Terminated, withdrawn and pending deals (418 deals worth $858 bn) Excluded: Terminated 17 deals, $42.85 bn Withdrawn 10 deals, $51.73 bn Pending 7 deals, $0.11 bn *Dollar values are in USDs and represent the total announced value of M&A deals
VALUE OF GLOBAL GENERIC VERSUS ALL PHARMA M&AS (%) $1.72 trillion $105.1 billion $250.3 billion $126.3 billion 9.3 13.4 34.9 90.7 98.2 86.6 65.1 All years 2014 2015 2016 Non-generic Generic
NO. OF COMPLETED M&AS WITH GENERIC TARGETS Number of deals 45 40 35 30 25 20 15 10 5 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Global USA Excluding USA
VALUE OF COMPLETED M&AS WITH GENERIC TARGETS Announced value in USD billion 50 45 40 35 30 25 20 15 10 5 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 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
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