A fascinating article on GABI Online and study written by researchers on the effect of price caps and reference pricing on generics entry. Another study is also available here.
The key points (quotes from the article):
Question: how the use of a price cap along with reference pricing affects the entry of generics after patent expiry?
- For reference pricing to stimulate generics entry, the price effect needs to be sufficiently small relative to the demand effect.
- If price cap regulation is introduced, the negative effect of reference pricing on generics entry can be reversed, and that reference pricing is more likely to result in cost savings than under free pricing.
- If the price cap is sufficiently strict, introducing reference pricing may actually increase the number of generic drugs on the market.
- The reason for this is that binding price cap regulation reduces the brand-name price difference between reimbursement schemes with and without reference pricing. Generics makers may therefore obtain higher market shares under reference pricing. Reference pricing is more likely to stimulate generics entry and facilitate cost savings when prices are regulated than in the free pricing equilibrium.
These studies show the price dynamics in the pharmaceutical markets and the impact of price control tool ont generics entry.
Allergan (former Actavis) is restructuring its operations with the divestment of its generics business to Teva for approximately USD 41 billion in cash and stock ($33.75 billion in cash and Teva shares valued at $6.75 billion, giving it a 10% stake in Teva).
But it’s not done. According to an interview with the Financial Times, the CEO, Brent Saunders, is eager to sign another mega deal with the proceeds from the sale mentioned above. Allergan can then be put on the list of serial deal makers.
On the other side of the table, Teva is about to join the club of the biggest pharmaceutical companies. According to a Business Insider UK article, “Allergan’s generic business is generally seen as a better fit than Teva’s previous target Mylan because it will improve Teva’s distribution channels and because Allergan is strong in so-called biosimilar drugs.”
In the generics market, Teva will stay one step ahead of Novartis Sandoz division (estimated proforma 2014 sales of USD 15.7 billion for Teva-Allergan vs. USD 8.5 billion for Novartis Sandoz division).
In this context, Teva will probably drop its pursuit of rival Mylan, which in turn will be able to focus on buying Perrigo.
Allergan signals appetite for new mega deal after $41bn disposal – Financial Times (Subscription required)
A $40.5 billion deal with Allergan will make Teva one of the biggest drug companies on the planet – Business Insider
Teva to Buy Allergan Generics for $40.5 Billion – WSJ
The Last-Minute Phone Call That Spurred Teva-Allergan Deal – Bloomberg
The deal in 4 points
USD 29 billion in cash and stock spent.
25% premium over the last closing price.
USD 15.3 billion of pro-forma combined sales in 2014.
Would be the biggest health care deal year to date, ahead of AbbVie-Pharmacyclics (USD 21bn) and Pfizer-Hospira (USD 16.7bn).