Drugmaker Teva will be allowed to acquire Allergan's generic pharmaceutical business after agreeing to divest a record 79 generic drugs in response to a challenge by the Federal Trade Commission.
The divestiture is the largest ever in an FTC pharmaceutical merger case, according to the FTC.
“Millions of Americans rely daily on generic drugs to treat a wide range of illnesses,” Debbie Feinstein, director of the FTC's Bureau of Competition, said in a statement. “The FTC's settlement safeguards the competitive availability of these medications for patients across the country who depend on them.”
A spokeswoman for Israel-based Teva declined to comment on the divestiture Wednesday, but the drugmaker did issue a release Wednesday announcing that its agreement with the FTC will allow it to acquire Allergan's generics business, known as Actavis Generics. The $40.5 billion deal is expected to close next week.
“We are pleased to have received all of the requisite regulatory approvals for our acquisition of Actavis Generics,” said Teva CEO Erez Vigodman, in the news release. “The generics industry is one of the most attractive industries in the world in terms of growth rates, profitability, return to investors and contribution to healthcare systems and societies around the world.”
The combined company is expected to generate more than $25 billion of free cash flow between the time the deal closes and 2019, according to Teva. Allergan is based in Ireland. The deal is expected to generate $1.4 billion in operational and tax synergies by the end of 2019, according to Teva.
As part of the agreement, Teva will divest anesthetics, antibiotics, weight loss drugs, oral contraceptives and drugs meant to treat ADHD, allergies, arthritis, cancers, diabetes, high blood pressure, high cholesterol, mental illnesses, opioid dependence, pain, Parkinson's disease and respiratory, skin and sleep disorders. The divestitures are designed to preserve competition in markets with Teva and Allergan now compete or would likely have competed in the future.
The FTC had alleged that without the divestitures, the acquisition was likely to dampen competition in the 79 generic product markets. Teva is already the largest generic drug company in the U.S., with an overall generic market share of about 13%, according to the FTC. Allergan is the third largest generic drugmaker in the country, with about 9% of generic sales, the FTC said.
After the acquisition, the combined companies will likely claim 22% of industry-wide generic product sales, according to the FTC.
The FTC ultimately concluded, however, that the merger was unlikely to be anticompetitive except in the 79 markets in which the FTC has ordered divestitures.
The large divestiture order Wednesday won't likely be the last of its kind. As the generic drug industry becomes more concentrated, it's likely more, large divestiture orders will follow, said Michael Carrier, a professor at Rutgers Law School.
“It's a signal that the FTC is willing to let generic mergers go through, comfortable in the remedy of divestitures rather than blocking the whole deal,” Carrier said.
Companies that will acquire the divested products include Mayne Pharma Group, Impax Laboratories, Dr. Reddy's Laboratories, Sagent Pharmaceuticals, Cipla Limited, Zydus Worldwide, Mikah Pharma, Perrigo Pharma International, Aurobindo Pharma USA, Prasco and 3M Co. Teva and Allergan must divest the drugs within 10 days after the acquisition.
The FTC worked with antitrust agencies in the European Union, Canada, Israel and Mexico on the investigation.