By Dana Mattioli, Jonathan D. Rockoff, Dana Cimilluca and Liz Hoffman
Israeli drug maker Teva Pharmaceutical Industries Ltd. is in
talks to combine with Allergan PLC's big generic-drug business, in
a move that would further consolidation in the health-care industry
and likely mean the end of Teva's pursuit of another
acquisition.
A deal for the Allergan business, valued at about $45 billion,
could be announced as early as Monday, according to people familiar
with the matter. The Allergan unit would be spun off and combined
with Teva--already the world's biggest seller of generic medicines
with a market value of $60 billion--one of the people said.
Teva has been seeking to buy Mylan NV, a deal Mylan has been
resisting as it pursues fellow drug maker Perrigo Co. PLC.
The merger would be the latest to shake up a major sector of the
health-care industry, and come on the heels of two big
announcements in which four of the largest managed-care companies--
Anthem Inc. and Cigna Corp. and Aetna Inc. and Humana Inc. --agreed
to combine into two companies, in deals worth a combined $82
billion.
Companies of all stripes are scrambling for tie-ups following
the Supreme Court's decision last month that upheld the 2010
Affordable Care Act health-care overhaul. Teva and Allergan, one of
the most active acquires in any industry in recent years, would be
the latest example of companies consolidating in part to achieve
the health savings sought by policy makers.
For Teva, a deal with Allergan would largely give the company
what it has been seeking from a Mylan deal: increased scale in the
hotly competitive generic-drug market, and an opportunity to pursue
further cost reductions that could help it cope with razor-thin
margins on the low-priced medicines.
Teva is under pressure because its top selling product, a
brand-name multiple-sclerosis treatment called Copaxone, started
facing lower-priced competition in the U.S. last month.
The $70 billion-a-year generic-drugs business isn't growing like
it had been, now that most of the big patent expirations for
blockbuster brand-name drugs such as cholesterol fighter Lipitor
have passed. In addition, the big generic-drug companies are facing
new rivals from India and other countries that are competing on
price.
As a result, some generic-drug companies including Allergan have
been moving upmarket into lucrative brand-name drugs. 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.
But the deal making had swollen Allergan's debt to about $44.3
billion as of March 31. A deal with Teva would help Allergan pay
down its debt and, combined with the $8 billion-a-year it generates
in cash, add higher-profit prescription drugs.
Terms of the Teva deal are still being worked out, including
whether Allergan's drug-distribution business will be a part of
deal, according to one of the people familiar with the talks. That
operation currently generates about $462 million in net revenue a
quarter.
Allergan's generics business was Teva's first choice for a big
deal, according to the person.
Last year, Allergan was the world's third-largest seller of
generic drugs after Teva and Novartis AG--with $6.6 billion in
sales, according to EvaluatePharma. Teva had $9.1 billion in
generic-drug sales, about 12% of the world market.
Allergan's 1,000 low-priced products include branded generic
drugs, over-the-counter medicines and generic versions of
well-known brand names such as the OxyContin pain treatment and the
Concerta attention-deficit-hyperactivity-disorder drug, according
to the company website.
The chief executive of Teva's global generic-medicines group,
Sigurdur Olafsson, knows the Allergan generics business since he
had worked there until 2014.
According to the person, a few months after Erez Vigodman took
the helm of Teva in February 2014, the company reached out to what
was then Actavis about a deal. But at that time, Actavis wasn't
interested in selling its generics business and dismissed the
interest.
Teva discussed a deal with Actavis a few times, the person said,
before The Wall Street Journal reported in April that the Israeli
company was considering a bid for Mylan.
Teva has been building up a 4.6% stake in Mylan, but Mylan's
resistance has been fierce. On Thursday, a foundation set up by
Mylan triggered a kind of Dutch poison pill, designed to thwart any
combination.
By that time, Teva was already in serious discussions with
Allergan about their own deal. Teva had upped its offer, and
Allergan was open to shedding its generics business, the person
said.
Allergan's market value on Friday stood at $124 billion.
Should shareholders react positively to any deal announcement
between the companies--as they have in many such cases lately--
among those benefiting could be Glenview Capital Management LLC.
The hedge fund was recently building a stake in Allergan, after
reaping more than $3 billion on a big bet on health-care stocks in
recent years.
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