Teva Inks $40.5 Billion Deal to Acquire Allergan’s Generics Unit

7/28/2015

The global pharmaceutical landscape was significantly altered on Monday as Israeli drugmaker Teva announced that it will purchase the generic drug business of Dublin-based Allergan. The move will put a stranglehold on Teva’s top sales position in the generic drug market, acquiring its third-largest competitor. Teva will purchase the generics unit for $40.5 billion, including $33.75 billion in cash and enough stock to give Allergan a 10 percent ownership in Teva. The deal is the largest in Israel’s corporate history. The sale will help Allergan pay down debt it accumulated after spending over $100 billion in deals involving high-end pharmaceuticals. Among other brand names, Allergan produces the popular Botox skin treatment. Allergan became the third-leading generic drug producer after combining with American pharmaceutical company Activis in March. The industry has undergone a massive wave of consolidation in recent years, including Celgene’s $7.2 billion acquisition of upstart Receptos earlier this month, among other deals.

In an interview regarding the acquisition, CEO Erez Vigodman said, “What we are doing here will enable Teva to be one of the winners of the ever-changing pharmaceutical industry.” In conjunction with the announcement, Teva withdrew its hostile bid to take over the second-largest generics producer, Mylan. Many, including analyst Gilad Alper, think that Allergan’s distribution channels make it a better fit than Mylan, as well as due to the type of drugs that Allergan produces. Alper said, “Allergan’s business is more high-end. It’s a more interesting business, a profitable business and it’s well managed.” Teva estimates that the acquisition will earn the company an additional $2.7 billion in revenue in 2016 and as much as $1.4 billion in annual tax savings by the end of 2018. Teva stands to lose about $300 million in its failed effort to acquire Mylan, however.

Vigodman is under pressure to diversify the company’s portfolio as generic competition heats up for its signature multiple sclerosis drug Copaxone, which earns Teva roughly half of its profit. Meanwhile, Allergan CEO Brent Saunders indicated in a conference call that the company will likely use some of the money to pursue further deals, saying “We will have the potential to add scale in existing therapeutic areas, expand into new therapeutic areas and geographies and evaluate strategic transformational deals as we continue to build on our position as the most dynamic branded growth pharma company.” Allergan has already announced a $560 million offer on Sunday to purchase antidepressant maker Naurex. Although Teva’s acquisition continues an already existing trend towards consolidation in the industry, many analysts see some antitrust concerns. Evercore ISI analyst Umer Raffat estimates that the company will have to sell off certain drugs worth about $500 million in annual sales to appease regulators. The deal is expected to be finished by the first quarter of 2016. With an overall valuation estimated by the Wall Street Journal to be $60 billion, Teva recorded $9.1 billion of its $20.8 billion in sales from generic drugs, about 12 percent of the world’s total generic drug market.

Sources:

Forbes – Antoine Gara

Reuters – Tova Cohen and Steven Scheer

Wall Street Journal – Jonathan D. Rockoff, Dana Mattioli, and Liz Hoffman