In a deal that could push up prices for generic drugs, Israel’s Teva Pharmaceuticals announced plans this morning to purchase Allergan Generics for $40.5 billion.
The announcement is the latest in a wave of health care industry consolidation, as drugmakers, hospital companies and insurers all race to get bigger. If Teva’s deal goes through, it will push global health care merger and acquisition activity for 2015 to more than $400 billion.
In its acquisition announcement, Teva says that the deal will further enhance its goals of "delivering the highest quality generic medicines at the most competitive prices and cultivating the best development pipeline in the industry." But watchdogs worry the industry trend could ultimately drive up consumers’ costs. In an open letter to the Federal Trade Commission earlier this month protesting another proposed $40 billion acquisition by Teva (which has since been abandoned), a coalition of consumer groups, including Consumers Union and the National Center for Health Research, said that drugmaker consolidation has already led to higher prices.
“An even more concentrated generic drug market would likely result in both unilateral and coordinated anticompetitive effects, including further price increases and a diminished competitive drive within the industry to develop new generic drugs,” the letter stated.
Last year, spending on generic drugs in the United States grew by $9.5 billion, while spending on protected brands fell by $700 million, according to the IMS Institute for Healthcare Informatics.
The low margins and growing popularity of generic drugs have pharmaceutical companies seeking out ways to achieve economies of scale in order to drive profits. Teva’s profits will take a hit next year when its patent expires for multiple sclerosis drug Copaxone.