Will The Pfizer-Mylan Deal Face Antitrust Hurdles?
Executive Summary
It's possible the US Federal Trade Commission could require Mylan or Pfizer's Upjohn to divest some pharmaceuticals as the companies have more than 70 overlapping products.
As the US Federal Trade Commission begins its review of Pfizer Inc. and Mylan NV's plan to merge Mylan with Pfizer's Upjohn off-patent branded and generic medicines business into a new company, a key question is how many products regulators might require them to sell.
The agency routinely has made its approval of pharma mergers and acquisitions contingent on the parties divesting overlapping products. The most recent transaction that may be most comparable to Upjohn and Mylan is Teva Pharmaceutical Industries Ltd.'s acquisition of Allergan PLC's generic drug unit in 2016. The FTC required Teva to sell 79 pharmaceutical products to 11 different companies, the largest divestiture it ever ordered in a pharmaceutical merger review. (Also see "Teva Embarks On New Phase With FTC Clearance Of Allergan Generics" - Scrip, 27 Jul, 2016.) Teva was also required to sell several abbreviated new drug applications and ended up generating $2.9bn from the sale of the products, far more than it had originally forecast.
Consolidation in the generic drug market has been driven in part by prolonged pricing pressure in the US market.
The Pfizer-Mylan transaction is different as it is creating a new company with the merger of Mylan and Pfizer's Upjohn unit, which includes 20 off-patent legacy brands, sold mainly in China, as well as the company's Greenstone generics unit. (See sidebar).
The companies have more than 70 overlapping products and the FTC could conclude that their merger may harm competition. These products include Pfizer's off-patent drugs Celebrex (celecoxib), Lipitor (atorvastatin), Norvasc (amlodipine), and Xanax (alprazolam). (See chart below).
FTC's decision to require product shedding is based on the size of the companies and the number of overlaps they have. A decline in the number of competitors to less than four or five usually requires divestiture. A big part of Upjohn's sales come from branded generics sold in Asia-Pacific countries, including China. (Also see "Love From Shanghai: Upjohn Started Here But Will It Stay Post-Mylan?" - Scrip, 30 Jul, 2019.)
But the Pfizer-Mylan deal could face other hurdles, including a delay, as has been the case with some other pending pharmaceutical deals. Spark Therapeutics Inc.'s proposed merger with Roche has had unexpected delays. Roche has had to extend the tender offer for Spark twice due to the FTC's ongoing review. Spark has one marketed product, Luxturna (voretigene neparvovec), which is targeted to a niche patient population with a rare form of inherited blindness, so it seems likely regulators are more concerned about overlap in the hemophilia pipeline. (Also see "When It Comes To FTC M&A Review, The Times May Be A Changin'" - Pink Sheet, 18 Jul, 2019.)
Deal Faces 'Modest Risks'
Stephen Calkins, a professor at Wayne State University Law School and former FTC general counsel, said the merger will raise questions but it is hard to know how they will be resolved without more information.
"It always makes good enforcers anxious when a merger is explained in part as a way to increase bargaining power and help solve the firms' unhappiness with low prices – but even anxious enforcers need to learn the actual facts and work through the likely effects," Calkins said. "Mylan is not known for treating consumers well, but, again, enforcers need to dig into the specifics of a transaction."
Mylan has faced public criticism for a series of events, most notably its years-long price hikes for the allergy rescue medicine EpiPen, that erupted into a public relations nightmare for the company in 2016 - and a Congressional inquiry. (Also see "The End Is Nigh For Mylan, But How Different Will The New Company Be?" - Scrip, 31 Jul, 2019.)
Bernstein analyst Ronny Gal said in a 29 July note that he expects the deal to go through without a lot of scrutiny. "We think there are high odds the deal will close and we see modest risks," he said. "Overlap will be primarily in the generic portfolios. These are smaller products and we do not see challenge in getting them done."
One area that will not be impacted by the combination is the biosimilars portfolios. Pfizer will retain its biosimilar drugs, which it reorganized into its innovative medicines portfolio at the beginning of the year. They include Inflectra (infliximab), a biosimilar of Johnson & Johnson's Remicade, and recently approved biosimilars of Amgen Inc.'s Avastin (bevacizumab) and Herceptin (trastuzumab).
Since the Pfizer-Mylan deal involves off-patent and generic drugs, it may raise less issues. The FTC has approved big generic drug company mergers with divestiture requirements. For example, Watson Pharma Inc. had to sell 18 drugs in its 2012 merger with Actavis and Teva and Barr Pharmaceuticals Inc. had to divest certain formulations of 16 on-market generics and 13 pipeline products in their 2009 merger.
FTC currently has a big agenda of proposed pharmaceutical mergers to work through. In June, AbbVie Inc. announced an agreement to acquire Allergan for $63bn (Also see "AbbVie Pounces On Chance To Buy Revenues In $63bn Mega-Deal For Allergan" - Scrip, 25 Jun, 2019.) And in January, Bristol-Myers Squibb Co. unveiled plans to buy Celgene Corp. for $74bn. BMS signaled potential FTC concerns about the merger when it announced in June that it is seeking a buyer for Celgene's blockbuster psoriasis pill Otezla (apremilast). The news surprised investors because FTC's concerns related to overlap with one of Bristol's pipeline drugs, not a commercial product. (Also see "In Merger Plot Twist, BMS Needs A Buyer For Celgene's Otezla, Raising New Questions" - Scrip, 24 Jun, 2019.)