Allergan and Teva Looking to Increase Market Share via Acquisitions

- July 27th, 2015

Recent acquisitions by Allergan and Teva reflect a broader trend of aggressive M&A by mid-size pharmaceutical companies.

It was a busy weekend for Allergan (NYSE:AGN). First, the company announced plans to acquire experimental antidepressant creator Naurex. Then, it revealed that its generics unit will been acquired by Teva Pharmaceutical Industries (NYSE:TEVA). 
Together, those acquisitions reflect a broader trend of aggressive M&A by mid-size pharmaceutical companies. Such companies view consolidation as a key strategy for increasing their market share.

Cornering the antidepressant market

News of Allergan’s acquisition of Naurex hit on July 26. The company will spend $560 million to purchase the company, which is behind the creation of experimental antidepressant drugs that may work to prevent suicides. As part of the deal, Allergan will pay Naurex’s owners undisclosed amounts if preset R&D and regulatory goals are achieved.
The buy will position Allergan as a leader in the area of psychiatric medication, with two high-profile antidepressants in the pipeline. Fierce Biotech reports that Naurex’s lead drug, GLYX-13, is poised for a late-stage study and a follow-up program is moving towards a Phase IIb trial. In previous trials, a clinical response was seen in 53 percent of participants who took GLYX-13, and almost 50 percent of patients who received biweekly doses of the drug were in remission after a month and a half of treatment. This data appears to be very promising in an area notorious for strong placebo effects and inconclusive clinical trials.

Generics sale to benefit Teva and Allergan

On the heels of the Naurex acquisition, Teva announced plans to purchase Allergan’s generics unit for $40.5 million. Allergan will receive $33.75 billion in cash and $6.75 billion in Teva shares (a 10-percent stake in the company).
The deal appears to be strategic for both companies. According to The Wall Street Journal, Teva is the the world’s largest generic drug company by sales. In 2014, it brought in $9.1 billion, $600 million more that its largest competitor, Novartis (NYSE:NVS). Allergan was the third-largest company on this list, with $6.6 million in generic drug sales. Teva’s acquisition of Allergan’s generics unit was thus no doubt a move to consolidate its position within the generic drug market.
Teva will also benefit from the deal in that it will push the company beyond its current mid-sized market cap to make it competitive with major pharmaceutical companies like Eli Lilly (NYSE:LLY).
Meanwhile, for Allergan, a plus from the deal will be the ability to pay down its debt from an aggressive acquisitions program (which included the anti-wrinkle drug Botox), and to streamline its focus on brand-name drugs, as per Bloomberg.

M&A in focus

As mentioned, both Allergan’s acquisition of Naurex and Teva’s purchase of Allergan’s generics business point to a larger trend in M&A by mid-size pharmaceutical companies looking to gain a stronger foothold in the market. And while it remains to be seen whether that trend will continue, it’s clear that market watchers believe in those two transactions — at close of day Monday, Allergan’s share price was up 6.16 percent, at $327.20, while Teva’s was up 16.52 percent, at $72.07.

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

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