Generic drugmaker Teva’s $40.5 billion move to buy the New Jersey-based generics unit of Allergan is a positive one for the Israeli company and its U.S. base in Montgomery County, analysts say.
It follows Teva’s failed attempt to merge with the drugmaker Mylan.
The deal, announced Monday, comes amid a boom in health care mergers. The biggest insurers are looking to consolidate. So are hospitals, large pharmacies and, perhaps most relevant to drug companies, the big buyers of their drugs, such as McKesson and CVS.
In the last year, consolidation has cut the number of buyers from about 10 to four, increasing their ability to negotiate lower prices, said analyst Ronny Gal of Sanford C. Bernstein and Co.
“They’re in a great position to squeeze the generic industry,” said Gal.”But then again, the direct big buyers are also under pressure from their clients to do a better job of controlling the cost of drugs.”
Teva is the world’s largest generic drug maker, with some 200 different products. Big products today include Abilify and Nexium, while it’s branded products include the multiple sclerosis drug Copaxone.
Teva accounts for about 12 percent of the generics volume in the U.S., Gal said. If approved, Teva’s purchase would increase that portion to nearly 20 percent.
“Teva will now be running a network of 90 manufacturing plants, 9-0. That is an enormous infrastructure just in terms of the amount of facilities they’re running,” he said.
An expansion could reduce manufacturing costs for Teva, but the associated management needs would likely be a boost for Teva’s U.S. headquarters near Philadelphia, according to the Philadelphia-based consultant and blogger Adam Fein.
“This should bring more jobs here to manage this larger business,” said Fein. “I don’t know if they’ve made any specific announcements about what’s happening to the Allergan personnel, but I’d imagine they’d be consolidating many functions into the Teva organization, which should benefit the Philadelphia region.”
Fein said the consolidations are an important way for generics “to countervail what they perceive to be the downward pricing pressure that these large buyers are going to put on the manufacturers.”
Some consumer groups worry that consolidations could lead to costlier generics and more drug shortages.