Last week, the Federal Trade Commission (FTC) approved the $40.5 billion acquisition of Allergan’s generic drugs business by Israel-based company, Teva Pharmaceuticals. In order to receive the FTC’s support with the deal, Teva agreed to unload 79 generic products onto 11 different companies.
While Teva was already a top generics maker in many markets before the deal with Allergan, the company now expects to be in the top three in more than 40 markets worldwide. The company expects that in the next three years, the acquisition will generate more than $25 billion in revenue.
“The new Teva will be ideally positioned to realize the opportunities the global and U.S. generic markets offer,” said Erez Vigodman, chief executive of Teva. According to the FTC, Teva will soon take control of a 22 percent market share in the US.
“Although this merger combines two large sellers of generic drugs, the generic pharmaceutical industry as a whole remains relatively unconcentrated,” said a statement issued by the FTC. “Over two hundred firms sell generic drugs in the United States and the five largest suppliers account only for about half of overall generic sales.”
Teva has been given ten days to sell off the 79 drugs, some of which were already planned to be divested before the FTC made their decision. The company will be selling the rights to these drugs to a number of their competitors, including Impax Labs, Dr. Reddy’s and Mayne Pharma.
The FTC is also requiring Teva to offer third-party drugmakers long term supply contracts for the active pharmaceutical ingredients (API) manufactured by the generics company. These contracts would provide security to those companies which rely on Teva-produced APIs, preventing the generic drugmaker from cutting supply if a brand-name drug competes with their generic products.
According to Teva, the company will save $1.4 billion in the next three years as a result of reduced operational costs and tax breaks from the deal. “The transaction strongly reinforces our strategy and yields very compelling economics,” said Vigodman. “As a result, it opens a new set of possibilities for us in generics and specialty medicines.”
In anticipation of the acquisition, Teva liquidated $15 billion worth of bonds last week. The company was able to avoid taking on new debt in order to finance their deal with Allergan.