ViewPoints: Agree to disagree – will FTC considerations scupper a Teva-Mylan deal?

In time, Teva would very much like to leave its dependency on Copaxone behind. That is, after all, one of the motivating factors for its $40.1-billion ($82 per share) bid to acquire Mylan, which was announced on Tuesday.

With Mylan itself seeking to gain FDA approval for a generic version of Copaxone, however, the high profile multiple sclerosis franchise also looks poised to at least partially shape Teva's M&A aspirations in another way.

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Ironically, Teva is also seeking to develop a generic version of Mylan's largest brand product, EpiPen for the treatment of anaphylaxis, and both development-stage generic products will require divesting if a deal is to go ahead.
Mylan has already suggested that anticompetitive issues will preclude a Teva/Mylan transaction, a view clearly not shared by the Israeli drugmaker which, after much speculation, finally moved to make an official 50 percent cash and 50 percent stock offer for its generics-sector rival on Tuesday.

For what it is worth, comments to this effect from Mylan executive chairman Robert Coury appear designed just as much to set out management's stall for a drawn out process alongside the poison pill mechanism recently put into effect; one which takes into account Mylan's ongoing – and defensive – interest in acquiring Perrigo, but is also designed to ensure any deal with Teva is on Mylan's terms, argues Bernstein analyst Ronny Gal, who suspects an offer closer to $90 a share will be required.

Analysts at ISI Evercore have made a provisional – and, in their words a highly conservative – estimate at what revenue generated by a combined Mylan/Teva may come under scrutiny from the FTC, suggesting that sales of around $1.6 billion, or approximately 8 percent of combined revenue, would fall under the spotlight. This appears to make a deal feasible, suggested analysts, who also suggest that a lack of overlap across both company pipelines is under appreciated. This would swell to around 400 pending applications with the FDA, including 80 first-to-file opportunities, said Teva.

Teva's own estimation is slightly lower, ISI analyst Umer Raffat told investors on a webinar to discuss the Mylan bid, but the Israeli company has been quick to confirm to analysts that high-profile divesture asset candidates such as Mylan's Copaxone generic or Teva's EpiPen generic will need, under FTC rule, to be divested to 'competitive' players. Raffat was equally quick to suggest that both products would likely attract well-positioned bidders.

Teva's inability to shake the Copaxone shadow extends to the timing of its bid for Mylan, coming just days after the FDA approved the first generic version of the multiple sclerosis treatment, developed by Novartis and Momenta Pharmaceuticals, which analysts had predicted would sharpen internal focus on M&A (if it hadn't – as now appears to be the case – already).

As one senior executive at a leading pharmacy benefit manager (PBM) told FirstWord, the presence of one generic version of 20mg Copaxone is likely to have only a limited impact on Teva's brand revenue, particularly as the company has been adept in switching around two-thirds of patients to a more convenient 40mg version. The presence of multi-source generics would, however, make an "earth shattering" difference in allowing PBMs and other payers to exert more pressure assuming that generic pricing would fall accordingly, he said. It appears that assuming Mylan's generic candidate remains viable for approval, any Teva/Mylan deal will therefore have minimal effect on substantially limiting its commercial impact (The Q&A – At long last…the FDA approves generic Copaxone – the key questions).

Assuming the FTC allows such a deal to proceed, a Teva/Mylan combination would, of course, play a significant role in finally reducing the Israeli-based company to Copaxone and an expected decline in sales once other generics enter the market.

The bigger consideration for Teva is likely to be the loss of opportunity stemming from its EpiPen generic, argues Gal; while Teva has confirmed that it has taken divesture of the product into account, he struggles to reach the company's projected accretion numbers assuming loss of the generic. The influence of Copaxone could also sway Mylan shareholders faced with the choice of a deal with either Perrigo or Teva, Gal told FirstWord; with patents on Teva's 40mg version of Copaxone now challenged on multiple fronts – and with the approval of generic 20mg Copaxone potentially increasing visibility on a future 40mg generic approval – Mylan investors may feel that Teva shares it receives as part of any deal are overvalued, Gal told FirstWord.

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