Are we seeing the end of low priced generics?

Teva Offers to Buy Mylan in $40.1B Cash-and-Stock Deal

By Linda A. Johnson, AP
ABC News, April 21, 2015

Generic drug giant Teva formally offered to buy fellow drugmaker Mylan for about $40.1 billion in cash and stock on Tuesday, despite Mylan's cold shoulder and the certainty the proposed acquisition will bring intense scrutiny by antitrust regulators.

If Israel-based Teva Pharmaceutical Industries Ltd. succeeded, the combination would dominate the global generic drug market, be a major contender in some other specialty drug categories — and have the leverage to try to raise generic drugs prices.

After years of stability, generic medicine prices recently have risen several percent a year on average. Some have skyrocketed by up to 1,000 percent, generally when competition vanishes due to consolidation or shortages caused by manufacturing quality problems.

A tie-up wouldn't just increase Teva's scale, allowing it to boost profitability by cutting jobs and other costs. It would increase its leverage in negotiating drug prices with insurers and other payers, noted Les Funtleyder, health care portfolio manager at E Squared Asset Management.

"That's going to feed into regulators' interest," he said.

That's particularly true in the U.S., where seven of eight prescriptions filled are for generics and employers, insurers and government health programs encourage their use to hold down costs.



By Don McCanne, MD

New pharmaceutical products usually enter the market at the maximum prices that the market would bear. So it was always a relief when the patents expired and patients could obtain much less expensive generic versions of these drugs.

Now that almost 90 percent of prescriptions have generic versions available, the industry is busy trying to find ways of increasing generic drug prices, and they have been successful with prices rising as much as tenfold. One of the methods has been to gain greater control of markets through consolidation. That explains Teva’s interest in purchasing Mylan. Drug shortages, whether or not contrived, have also been a method of boosting prices. In many instances, drug prices sharply increased after the line was purchased by another firm, partly to recover capital investments, but no doubt to simply increase profits.

Is that the way markets should work? Supposedly markets should bring prices down, but today’s market innovations have been raising prices - almost intolerably so in the drug markets. The greater dependency on pharmacy benefit managers has only added a new wasteful administrative layer on top of our already overpriced drugs.

This would not be tolerated under a single payer system. Our own public purchaser of health care products and services would demand appropriate pricing - just enough profit to keep the pharmaceutical firms interested in pursuing their fair portion of our national health expenditures. But PhRMA had a front seat when the Affordable Care Act was constructed. That lobbying investment is really paying off for them now.