Drug Kingpin
US $40.5B Allergan buy solidifies Israel’s Teva as ruler of generics.
Israel’s Teva Pharmaceutical Industries Ltd. will pay US$40.5 billion in cash and stock for Allergan Inc.’ s generic drugs business, solidifying Teva’s position as the world’s No. 1 maker of generics while freeing Allergan to focus on branded drugs, paying down debt and potential “transformational” acquisitions.
The deal, the largest in Israel’s corporate history, allows Teva stronger economies of scale, crucial in the low-margin generic drugs business. Teva, which dropped its hostile pursuit of Mylan, will likely have to sell off some drugs to allay antitrust concerns.
“Allergan’s business is more high-end (than Mylan). It’s a more interesting business ... a profitable business and it’s well managed,” said Gilad Alper, an analyst at brokerage Excellence Nessuah.
Allergan, known for its Botox anti-wrinkle treatment, became the third-largest generic drugmaker in the United States after combining with Actavis PLC in March. It is seen as a better fit than Mylan because it will improve Teva’s distribution channels and access to profitable injectable drugs.
Pressure has been growing on Teva chief executive Erez Vigodman to find new revenue sources to combat generic competition for its branded multiple sclerosis drug Copaxone. Copaxone accounts for about half of Teva’s profit.
Allergan CEO Brent Saunders, who led Actavis’ purchase of Forest Laboratories and then Allergan, said the company will use the US$36 billion in net proceeds from the generics sale to help fund further large acquisitions.
“We can accelerate our timing on transformational M&A,” Saunders said during a conference call. He cited esthetics, eye care, central nervous system disorders and gastrointestinal therapies as areas for potential future deals. Wall Street analysts speculated that possible targets include Biogen Inc, Amgen Inc and AbbVie Inc.
The health-care sector has seen an unprecedented wave of deals since early 2014, from large drugmakers buying up smaller rivals, to consolidation among makers of generic medicines and tie-ups between insurers. Global healthcare M&A reached US$398.5 billion as of July 23, up 80 per cent on a year ago, according to Thomson Reuters data.
Teva shares, which had been weighed down by the Mylan uncertainty, rose 13 per cent in New York trading on Monday. Allergan shares gained 7.2 per cent and Mylan shares slid 14.4 per cent.
Mylan had used a poison pill-style defence to fight a US$40 billion takeover by Teva, arguing that a deal was “without sound industrial
The deal (is) the largest in Israel’s corporate history
logic or cultural fit” and would face regulatory hurdles. The company said on Monday it would continue efforts to buy Perrigo Co. PLC, whose shares were up 3.8 per cent.
Teva may need to sell a large number of assets to satisfy antitrust authorities about the Allergan transaction, according to two antitrust attorneys who handle pharmaceutical deals.
“But if you look at the total size of the deal, that’s going to be a tiny fraction,” one lawyer said.
It may also be harder to find buyers for those drugs given the consolidation already seen in the generics sector, they said. The U.S. Federal Trade Commission requires buyers for proposed divestitures before it will approve a deal.