Teva Pharmaceutical Industries has agreed to buy Allergan Plc’s generic drugs business for $40.5 billion in a cash and stock deal that will turn the Israeli company into one of the world’s largest pharmaceutical firms.
The deal, the largest in Israel’s corporate history, prompted Teva to drop its $40 billion hostile bid for Mylan, which had hit a snag when a Dutch foundation linked to the target bought temporary control of half the company in an attempt to block the takeover.
It also will allow Dublin-based Allergan, the third-largest generic drugmaker in the US, to focus on branded drugs and pay down its debt.
“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, noting a “friendly deal” is preferable to a hostile one.
Allergan’s generic business is seen as a better fit than Mylan because it will improve Teva’s distribution channels and because Allergan is strong in so-called biosimilar drugs, as well as injectables, and has a presence in India.
Our respective portfolios of generic medicines and applications are highly complementary
Pressure has been growing on Teva, already the world’s biggest generic drugmaker, to find new revenue sources to combat the start of competition this year for its multiple sclerosis drug Copaxone. Copaxone accounts for about half of Teva’s profit.
The acquisition is the latest in an unprecedented wave of healthcare deals since the start of 2014, stretching from large drugmakers buying up smaller rivals, to consolidation among makers of generic medicines, to tie-ups between insurers.
Global healthcare M&A so far this year reached $398.5 billion as of July 23, up 80 percent on a year ago, according to Thomson Reuters data.
Economies of scale are particularly important in generics, given the relatively low margins involved and the highly competitive nature of the market.
Teva shares, which had been weighed down by the Mylan uncertainty, jumped 10 per cent in Tel Aviv and were up 11.8 per cent at $58 in premarket trading in New York. Mylan shares slid 12 per cent to $58 in pre-market trading.
“There is only one entity that would stand to lose [from Teva-Allergan], which is Mylan,” said Cowen and Co analyst Ken Cacciatore, who believes Teva’s shares will reach $100.
Mylan said it would continue its acquisition of Perrigo.
Teva will pay $33.75 billion in cash and $6.75 billion in shares, representing a 10 per cent stake in the Israel-based company, Teva said in a statement. The deal is expected to close in the first quarter of 2016.
Though the Teva-Mylan feud has hogged the industry spotlight since April, Allergan’ generics business may have been Teva’s first choice. Teva CEO Erez Vigodman is believed to have approached Allergan last year, which was called Actavis prior to a March merger.
In June 2014, just a few months after joining the company, Vigodman hired Sigurdur Olafsson, former head of Actavis’s generic drug business, to fill a similar role at Teva.
“My sense always was that Mylan was Teva’s Plan B,” said Benny Landa, an industrialist who led an investor bid last year to shake up Teva’s board, calling the deal “brilliant”.
Landa, who initially questioned the logic of Teva’s bid for Mylan, said he believes Allergan’s business was “culturally a much better fit, as evidenced by the behaviour and the style of Mylan’s leadership,” said Landa.
Mylan executive chairman Robert Coury repeatedly rejected Teva’s offer, saying the combination of Teva and Mylan was “without sound industrial logic or cultural fit”.
Vigodman said the combined companies will have proforma revenue of $26 billion and earnings before interest, tax, depreciation and amortisation of $9.5 billion in 2016.