Business
Teva said on Monday it will buy Allergan's generic drugs business for $40.5 billion. The deal, the largest in Israel's corporate history, allows Teva stronger economies of scale, crucial in the low-margin generic drugs business, reports Reuters. 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 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 $36 billion in net proceeds from the generics sale to help fund further large acquisitions.
For Allergan, the Teva deal provides it with cash to pay down debt and allows the company to focus more on lucrative brand-name drugs, notes the Wall Street Journal. Actavis was renamed Allergan earlier this year, after doing $100 billion in deals last year that gave it brand-name drugs, notably wrinkle fighter Botox. Those deals had swollen Allergan’s debt levels, and the company has said it is committed to reducing its debt levels. Teva said it expected the acquisition of Allergan Generics to contribute $2.7 billion in earnings before interest, taxes, depreciation and amortization, or Ebitda, in 2016, excluding synergies. It expects to achieve cost synergies and tax savings of approximately $1.4 billion annually, largely achievable by the third anniversary of the closing of the transaction.
Allergan’s 1,000 low-price products include branded generic drugs, over-the-counter medicines and generic versions of well-known pharmaceuticals such as the OxyContin pain treatment and Concerta, which treats attention-deficit-hyperactivity-disorder.
