European regulator approves Teva’s $40.5-bn Allergan drug unit deal with conditions

The European Commission (EC) yesterday approved Teva Pharmaceutical Industries' $40.5-billion acquisition of the generics drug unit of Allergan on condition that it divests some drugs, mainly Allergan products in the UK and Ireland.

In July last year, generic drug giant Teva offered to buy Ireland-based Allergan's generic pharmaceuticals business for $40.5 billion in cash and stock, the largest-ever acquisition by an Israeli company. (See: Teva in $40.5-bn pact to buy Allergan's generics, ends Mylan bid)

The EC said that following a thorough market investigation, it found that there were competition concerns for a number of marketed generic molecules and generic molecules in development pipeline in 24 European Economic Areas countries, due to horizontal overlaps or vertical relationships.

The EC also found that in Iceland, Allergan Generics has historically been the dominant generics supplier, while in Ireland, Teva and Allergan Generics, although being recent entrants, have became market leaders and have successfully challenging the established generics players, particular through aggressive pricing and in the UK.

The EC said that Teva and Allergan Generics are the only two generics manufacturers with a portfolio of generics broad enough to be able to sell directly to pharmacies without going through a wholesaler, offering competitive discount schemes.

In order to address the EC's competition concerns, the two companies offered to divest each of the marketed molecules and molecules in development pipeline, Teva's portfolio of marketed molecules and molecules in development pipeline in Iceland.

Both companies also agreed to divest a majority of Allergan Generics marketed generics activities and generics activities in development pipeline in Ireland and the UK, covering the manufacture, supply and distribution of these products, including Allergan Generics' manufacturing plant in Barnstaple, UK, where most of the generics it sells in Ireland and the UK are manufactured.

Established in Jerusalem in 1901 by Chaim Salomon, Moshe Levin and Yitschak Elstein, Teva started out as a small wholesaler of imported drugs. The company has since come a long way to become the biggest corporation in Israel and currently has a market cap of $60 billion.

Since it is based in Israel, Teva stands to gain huge tax benefits with the closing of the Allergen generic unit deal.

Though a generic giant in the industry, Teva has recently lost market share to rivals like India's Sun Pharmaceutical Industries.

Teva CEO, Erez Vigodman has been looking for acquisitions after the patent expiry last year of its best-selling branded drug for multiple sclerosis, Copaxone, which accounted for $3.1 billion or nearly 20 per cent of its $15.1 billion in revenue last year.

Last year the US Food and Drugs Administration approved the first generic version of Copaxone, which could wipe out a third of the drug's sales by 2018, although Teva has switched its patient onto a version with longer-lasting effects.