The world’s largest manufacturer of generic drugs, Teva, has bagged some big game.
Monday morning, the company announced that it has agreed to buy Allergan’s generic business for a little more than $40 billion.
If approved, the deal places Teva amongst the largest drug companies on the planet.
With just one purchase, the company could bring in new revenue, fend off competition from China and India, and gain even more pull in this $70 billion a year business, says Elizabeth Krutoholow, Bloomberg Intelligence analyst.
“It’s just a matter of being able to throw around your power in pricing,” she says. “So you are trying to get your drugs into the pharmacy. If you have more things in your bag that you can play around with, you certainly have greater leverage there.”
Whether this deal would ratchet up prices depends on how many drugs in Teva’s bag are in direct competition with the one’s in Allegran’s bag, says Yale economist Fiona Scott Morton.
“We really care about the overlaps of these firms. If there is a lot, then there is potential for higher prices when they merge. So … the regulator needs to go out and look at where these guys overlap,” she says.
While there are a lot of tie ups in healthcare these days, Morton says generics are a different game.
Unlike health insurance, for example, it’s easier to get into generics, making it more likely the small guys will be able to grow and keep competition more robust.