Teva buys Allergan's generic drug unit for $40.5B

Teva Pharmaceutical Industries said Monday it has agreed to buy Allergan's generic drug unit for about $40.5 billion.

Based in Jerusalem, Teva is one of the world's largest generic drug manufacturers, and the stock-and-cash deal will help boost its pipeline, supply chain and global revenue sources, the company said.

Allergan, best known for making Botox, will receive $33.75 billion in cash and shares of Teva valued Monday at $6.75 billion. Approved by the boards of both companies, the deal is expected to close in the first quarter of 2016.

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"Our respective portfolios of generic medicines and applications are highly complementary," Teva CEO Erez Vigodman said in a statement.

Allergan Generics is expected to contribute about $2.7 billion in earnings before interest, taxes and other items next year. Following the completion of the acquisition, Teva is expected to have "pro forma sales of approximately $26 billion" worldwide and cash flow of about $6.5 billion in 2016. "Teva will continue to evaluate opportunities" for other deals, it said.

Teva said it expects a "double-digit" increase in its "non-GAAP earnings per share" in 2016 due to the acquisition. It also expects savings of about $1.4 billion annually by cutting redundant operations, "largely achievable by the third anniversary of the closing of the transaction."

Robert Weissman, president of consumer rights group Public Citizen, criticized the deal, saying the industry consolidation could lead to higher prices. “A working generic drug market requires robust competition," he said in a statement. "Teva’s acquisition of Allergan Generics will continue the trend of consolidation in the generics market — a trend that has led to skyrocketing prices for numerous generic products."

With the Allergan deal now formally announced, Teva is abandoning its pursuit of Mylan, a drugmaker based in Hertfordshire, England. Teva initially revealed its unsolicited "expression of interest" to buy Mylan on April 21. But Mylan's management has turned down Teva's offers in order to pursue its own acquisition of another drug maker, Perrigo.

"Our offer to acquire Perrigo continues to be the next natural step in this strategy," said Mylan Executive Chairman Robert J. Coury in a statement. "We look forward to the next step in the process to make our combination with Perrigo a reality — the vote by Mylan shareholders to support this transaction — which we expect to occur in the next several weeks."