Teva Buys Allergan Generic Business Unit

Teva Pharmaceutical Industries (Petah Tikva, Israel) has bought the Allergan (Irvine, CA, USA) generic drugs business for USD 40.5 billion in cash and stock, solidifying its position as the world's largest generic drug maker.

Under the terms of the agreement, Teva will pay USD 33.75 billion in cash and USD 6.75 billion in shares, representing a 10% stake. In addition, Allergan will retain 50% of future revenue from generic lenalidomide. Teva expects cost synergies and tax savings of USD 1.4 billion annually by the third anniversary from efficiencies in operations, manufacturing, sales, and marketing. It also expects the acquisition to generate free cash flow of USD 6.5 billion in 2016 and increased free cash flow in subsequent years, which will help Teva expand its portfolio in both specialty pharmaceuticals and generics via further acquisitions.

Teva will receive the legacy Actavis global generics business, third-party supplier Medis, global generic manufacturing operations, the global generic R&D unit, the international over-the-counter (OTC) commercial unit (excluding OTC eye care products), and some established international brands. Allergan will retain its global branded pharmaceutical and medical aesthetic businesses, as well as its biosimilars development programs and the Anda distribution business. The deal will allow Allergan, the maker of Botox, to focus on branded drugs, pay down debt, and explore other potential transformational acquisitions.

“Through our acquisition of Allergan Generics, we will establish a strong foundation for long-term, sustainable growth, anchored by leading generics capabilities and a world-class late-stage pipeline that will accelerate our ability to build an exceptional portfolio of products—both in generics and specialty, as well as the intersection of the two,” said Erez Vigodman, President and CEO of Teva. “Our respective portfolios of generic medicines and applications are highly complementary, providing Teva with high quality growth and earnings visibility, and the scale and resources to expand upon our specialty capabilities.”

“While we were not actively seeking a buyer for our generics business, Teva presented an offer at a very compelling valuation that reflects and recognizes the significant value that our global generics team has generated in creating and managing a world-class generics business,” said Brent Saunders, CEO and President of Allergan. “As a result of the transaction, we will also obtain a minority equity interest in Teva to share in the upside of the generic R&D pipeline we are transferring in this combination.”

Teva added that it would drop its hostile takeover pursuit of rival generic drug giant Mylan (Pittsburgh, PA, USA) in wake of the agreement, and would review its options with respect to the approximately 4.6% of Mylan stock that it owns.

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