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July 27, 2015

Teva to Acquire Allergan's Generics Business for $40.5B

  • Allergan said today it has agreed to sell its global generic pharmaceuticals business to Teva Pharmaceutical Industries for $40.5 billion—a blockbuster deal that ends the buyer’s months-long effort to grow into a global giant by acquiring Mylan.

    Under the deal, Teva has agreed to buy Allergan's legacy Actavis global generics business, including the U.S. and international generic commercial units. Allergan’s generic portfolio includes more than 220 ANDAs pending FDA approval with 74 confirmed First-to-File opportunities.

    The transaction is intended to transform Teva into one of the world’s top drugmakers—a goal the company sought to achieve earlier this year by snapping up Mylan. But Mylan rejected Teva’s unsolicited advances, starting with a nearly $40 billion cash-and-stock offer disclosed in April—a month after speculation arose of a possible deal between Teva and Mylan.

    “We continue to believe that a combination of Teva and Mylan would have made sense for our companies, our respective stockholders, and the healthcare industry as a whole,” Teva president and CEO Erez Vigodman said in a statement. “Despite our clear commitment to consummating a transaction, and our conviction that we ultimately would have succeeded in acquiring Mylan, we believe we have an even greater opportunity to create compelling, sustainable value for Teva’s stockholders through our transaction with Allergan—and we acted quickly to seize the opportunity.”

    Teva intends to review its options regarding its ownership of about 4.6% of Mylan’s outstanding ordinary shares of common stock, Vigodman said.

    According to Teva, generics along with specialty drugs showed improved performance in the second quarter, in a statement accompanying preliminary quarterly results released today. Teva will report full second quarter 2015 financial results on Thursday.

    While Teva acknowledged a 2% dip in revenues from Q2 2014 to $4.97 billion, the company said the decline reflected the impact of foreign exchange fluctuations and the sale of U.S. over-the-counter (OTC) plants in July 2014. Absent those factors, Teva said, revenues rose 6% year-over-year.

    “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," Allergan CEO and president Brent Saunders in a separate statement.

    Teva also agreed to acquire 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.  Allergan will also retain 50% of Teva's future revenues from generic lenalidomide (Revlimid®).

    In addition, Allergan promised to maintain a “strong” commitment to R&D spending, which is expected to reach about $1.4 billion this year.

    As a result of the deal with Teva, Saunders said, Allergan expects to have 2015 pro forma sales of approximately $15.5 billion, a simplified operating model and a strong position in seven therapeutic areas—eye care, gastroenterology (GI), aesthetics, women's health, CNS, urology and anti-infectives.

    Allergan’s branded drug business includes among its top-sellers the neuromuscular blocking agent Botox® as well as high blood pressure treatment Bystolic® (nebivolol); Namenda XR® (memantine HCl) for moderate-to-severe dementia of the Alzheimer’s type; the ulcerative colitis treatment Delzicol®/Asacol® HD (mesalamine); and Linzess® (linaclotide) for chronic idiopathic constipation and irritable bowel syndrome with constipation in adults.

    That branded-drug portfolio is expected to grow this year if several pending acquisitions are completed as planned. Just yesterday, Allergan said it planned to acquire Naurex, a developer of central nervous system treatments, for $560 million upfront plus an undisclosed amount in payments tied to sales-threshold milestones.

    Naurex’s lead development product rapastinel (GLYX-13) is a once-weekly intravenous Phase III-ready molecule that showed rapid, robust and sustained efficacy against depression in multiple Phase II clinical studies. Another Naurex pipeline candidate, NRX-1074, has shown in its intravenous form antidepressant efficacy in an initial single-dose Phase II study, according to Allergan, while its oral form is in Phase I studies.

    However, Naurex will spin out into a new company its platform designed to discover drugs that enhance synaptic plasticity by modulating the NMDA receptor rather than shutting it down. The new spinout will launch a research collaboration with Allergan focused on the discovery and early development of innovative small molecule NMDA receptor modulators for the treatment of certain psychiatric and neurologic disorders.

    Last month, Allergan said it planned to acquire Kythera Biopharmaceuticals for about $2.1 billion in cash and stock, adding to its portfolio Kybella, the first non-surgical treatment for double chins, and a pipeline that includes setipiprant (KYTH-105) designed to prevent male pattern baldness.

    Allergan will also have a simplified manufacturing network of 12 plants globally, an mid-to-late-stage R&D pipeline with 70 projects, and a global commercial operating model through which the company said it intends to generate double-digit branded product sales with “compelling” profit margins.

    "This transaction will accelerate Allergan's evolution into a branded growth pharma leader, enable a sharpened focus on expanding and enhancing our global branded pharmaceutical business and strengthen our financial position to build on our proven track-record of value creation led by effective capital deployment," Saunders said.

    "The transaction results in after tax net cash and equity proceeds of approximately $36 billion that we intend to deploy to further accelerate the robust growth prospects of our branded business,” Saunders added. “We will have the potential to add scale in existing therapeutic areas, expand into new therapeutic areas and geographies and evaluate strategic transformational deals as we continue to build on our position as the most dynamic branded growth pharma company.”

    Under their deal, Allergan will receive $33.75 billion cash, and the remaining $6.75 billion in Teva stock. Allergan said it expects to use a portion of the sale proceeds to pay down debt, including credit facilities and bonds.

    The transaction is expected to close in the first quarter of 2016, subject to customary conditions that include antitrust clearance in the U.S. and the E.U. and certain other jurisdictions. Allergan said the boards of both companies have unanimously approved the deal, and no shareholder vote is required at either Allergan or Teva.

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