Drug shortages become issue in Teva and Mylan hook-up

In its most recent update, the FDA showed that haloperidol lactate injection was in short supply. Listed among the half a dozen manufacturers of the antipsychotic drug were Mylan and Teva Pharmaceutical Industries. In fact, of the 31 drugs shortages listed in the last couple of months, Mylan was a producer of 9 of them and Teva of 5 and in two cases, they both produced the same drug, the supplies of which were limited in some fashion. And if Teva is able to convince Mylan to join forces, this kind of information will be crucial to a review by antitrust regulators.

Mylan ($MYL), which is trying to avoid Teva's $40 billion takeover attempt, has said in a letter rejecting the offer that a hook-up would likely spark regulator concern about drug pricing and shortages. But Teva ($TEVA) shot back that it has said it has already considered where the two companies' products overlap and though some will have to be divested, is confident the deal can pass muster with the Federal Trade Commission. Sources tell Reuters that Teva is already making its case to the FTC.

Mylan Chairman Robert Coury

In a letter to the Mylan CEO Robert Coury Wednesday, Teva addressed the shortages question head-on. "Additionally, there are very few products sold by both Mylan and Teva that are on the FDA's 'drug shortage' list, and where these overlaps do exist, we do not foresee meaningful regulatory issues given differences in dosage strengths and/or the number of other sellers that exist."

Experts tell Reuters that the potential for making drug shortages worse can be expected to play into an FTC decision on whether to allow the world's largest generics maker to concentrate more market power by buying Mylan.

"The FTC should be thinking about and not wanting to approve mergers that would worsen the conditions that would cause shortages," an antitrust specialist told the news service anonymously. "The fewer production facilities that there are, the greater susceptibility to price fluctuations."

A combined Teva and Mylan would jump Teva's global market share in generics to about 20% from 12% now, Reuters said, compared to the 9% each held by Novartis ($NVS) and Actavis ($ACT). Citing IMS Health statistics, Berenberg Bank analyst Louise Pearson figures that 50% of the drugs sold by Mylan in the U.S. are also sold by Teva.

The FTC took a hard look at the impact on a consolidation would have on shortages when Watson Pharmaceuticals bought Actavis ($ACT) and then assumed its name. Typically, the FTC wants to be sure there are several competitors making a drug to reduce the chances of a shortage if a plant must shut down production. But as current shortages of products like saline solution show, there can be shortages even when there are three or four producers.

Healthcare providers are certainly concerned with how this might play out, both because it could affect the prices they pay for drugs, and because of the potential for more, and more serious shortages. Dr. Beverly Philip, a professor of anesthesiology at Harvard Medical School, told Reuters, "All the manufacturing consolidation makes us nervous."

- here's the Mylan letter
- here's the Teva letter (PDF)
- here's the Reuters story
- here's the FDA New and Updated drug shortages list

Special Reports: Top 10 generics makers by 2012 revenue - Mylan - Teva | Pharma's top 10 M&A deals of 2014