Merger Mania: Teva May Snap Up Allergan’s Generics Arm

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Inside Teva Pharmaceutical Industries Ltd.
An employee works with sterile products during the manufacture of pharmaceuticals inside Teva Pharmaceutical Industries Ltd.'s factory in Hungary. Photographer: Akos Stiller/Bloomberg

Israeli drugmaker Teva Pharmaceuticals Industries Ltd. is nearing an agreement to buy the generic-drug business of Allergan Plc for about $40.5 billion, according to people familiar with the matter.

A purchase, which will mostly be in cash, could be announced as soon as Monday, said the people, who asked not to be identified because the information is private. Teva is also planning to announce it’s withdrawing its offer for another generics maker, Mylan NV, as early as Monday, the people said. Talks could still fall apart.

The acquisition would extend a wave of mergers that has swept over the health-care industry. Announced pharmaceutical deals so far this year have topped $180 billion, according to data compiled by Bloomberg. That’s on pace to beat last year’s record of more than $200 billion. A deal with Allergan also would let Teva drop its protracted battle to take over Mylan.

The timing may be right for Allergan to consider a sale of its generics business, said Elizabeth Krutoholow, an analyst at Bloomberg Intelligence in New York.

“They may be able to command a significant premium given the recent interest in the sector,” Krutoholow said in an e-mail on Saturday before the talks were disclosed.

With profit margins on branded products of as much as 80 percent, compared with about 50 percent for generics, Allergan Chief Executive Officer Brent Saunders may favor focusing growth on premium drugs. Among other things the company makes the blockbuster wrinkle treatment Botox.

“With Saunders in charge, the company may lean more” to branded drugs “since that is his area of expertise,” Krutoholow said. “It’s a more attractive growth area for the company.”

Merger Fever

In that vein, Allergan said Sunday it would buy the biotech company Naurex Inc., which is developing a fast-acting antidepressant. The $560 million all-cash transaction is expected to close by year-end.

“We expect Naurex will enhance Allergan’s mental health portfolio and build on our strategy to lead in this important therapeutic area,” Saunders said in a statement.

Teva, the world’s largest maker of generic drugs, has been pursuing a deal to buy rival Mylan and solidify its role as the industry giant. Mylan has rejected Teva’s advances so far and is itself pursuing Perrigo Co., a campaign that might continue if Teva focuses instead on Allergan.

A Teva spokeswoman wasn’t immediately available to comment. Representatives for Allergan and Mylan declined to comment.

Bitter Conflict

Allergan, based in Dublin and with operating headquarters in Parsippany, New Jersey, is itself the product of a recent merger. Actavis Plc agreed to buy Allergan for $66 billion in November 2014, after spending months locked in bitter conflict with Valeant Pharmaceuticals International Inc., a rival drugmaker that had started a hostile takeover effort that year. The deal was completed in March.

Last month, Actavis rebranded the combined company as Allergan. The combination created a health-care giant, with projected annual sales of more than $20 billion this year. The generics business generated sales of $6.75 billion last year. Teva’s current head of generics, Siggi Olafsson, is a former Actavis executive.

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