Teva Pharmaceuticals is buying Allergan's generic drug unit for $40.5 billion — here's why so many health care companies are merging
(REUTERS/Baz Ratner) A building belonging to generic drug producer Teva, Israel's largest company with a market value of about $57 billion, is seen in Jerusalem March 23, 2010.
Israel-based drug producer, Teva Pharmaceuticals is buying Allergan's generic drug company for $40.5 billion.
An official announcement on the deal released early Monday indicates Allergan would receive $33.75 billion in cash, plus shares of Teva valued at $6.75 billion.
The deal would place Teva among the top 10 global pharmaceutical companies, according to the press release.
Before news of the Teva-Allergan link-up, Teva had been unsuccessfully pursuing another merger with generic drug-maker, Mylan Pharmaceuticals.
One of Teva's motivations for the Allergan deal is to increase its position in generic medicines.
It's another in what has been a flurry of health care and biotech mergers since the Supreme Court last month handed down a key ruling on the Affordable Care Act (ACA) that effectively ensured its continued existence in the near term.
But, despite the high court's ruling last month, the mergers also signal a pushback by health care giants aiming to remain competitive in the marketplace. President Barack Obama has said one of the goals of the ACA — better known as Obamacare — was to ensure increased competition that would, ideally, offer more choices for consumers and keep costs low.
During a forum on health care mergers at Wharton School of the University of Pennsylvania, health care management professor Mark Pauly said the increased M&A activity could be broken down as a two-pronged initiative. Pauly says on one hand, it's "a kind of counterattack on the part of insurers," who may seek to reduce the number of competitors and avoid being "stabbed in the back" by rivals who could try to undercut them on prices.
On the other hand, Pauly says, Obamacare contains provisions specific to Medicare that affect so-called "provider-side" entities known as accountable care organizations (ACOs). These ACOs — which house doctors, hospitals and other health care providers — are also closing ranks, which could potentially give them leverage in bargaining with insurers.
Pauly effectively boils down all of this in one sentence:
"What we're seeing here is a reaction to that consolidation by insurers saying, well, if the providers are now going to gang up on us, we better gang up on them."
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