Aurobindo Vies for a Chunk of Teva’s Generics Business

Teva to sell its U.K., Ireland, and Iceland assets to obtain FTC approval for the Allergan deal

T1Aurobindo Pharma Ltd, India’s fourth-largest drug maker, is considering joining the fray to buy assets of over $1 billion from Israel-based Teva Pharmaceutical Industries Ltd. (NYSE: TEVA), the largest generics maker in the world by revenue, as reported by Bloomberg on July 5th, 2016. Teva is selling its U.K., Ireland, and Iceland assets in relation to obtaining regulatory approval for its acquisition of Allergan PLC’s (NYSE: AGN) generics business. The Israeli drugmaker agreed to buy the generic drug business of Allergan for about $40.5 billion in cash and stock on July 27th, 2015.

Aurobindo would finance the deal with a loan of over $1 billion. Aurobindo’s perusal of Teva’s assets makes sense since it would create synergies for the India-based drugmaker, which manufactures generic drugs and pharmaceutical ingredients and exports to more than 125 countries.

Other Indian firms evince interest in Teva’s drug assets

Apart from Aurobindo, several Indian companies are in the race to buy dozens of overlapping products that Teva wants to sell to streamline its operations. In June 2016, India’s second-largest drug maker, Dr Reddy’s Laboratories Ltd, agreed to buy a portfolio of eight abbreviated new drug applications (ANDAs) from Teva for $350 million. Another major pharmaceutical firm, Cadila Healthcare Ltd, has also acquired two ANDAs from Teva.

Aurobindo’s earlier acquisitions

Acquisitions and mergers are not new for Aurobindo. In January 2014, the Company acquired the loss-making commercial operations of Irish drugmaker Actavis PLC’s, now Allergan, in seven Western European countries for €30 million. What is more, Aurobindo was able to turn around these entities successfully. In November 2014, Aurobindo acquired U.S.-based nutraceutical company, Natrol Inc., for $132.5 million, and is yet to reap the fruits of its consolidation.

Teva-Allergan deal meets regulatory hurdles

Meanwhile, Teva’s acquisition deal for Allergan has met with a lot of regulatory hurdles from the U.S. Federal Trade Commission (FTC) and the European Commission (EC). The EC prefers that Teva’s European assets should go to a strategic buyer with experience in the European generics market. In March 2016, Teva won conditional EC approval for the Allergan takeover after dispelling regulators’ concerns with concessions, including the sale of a majority of the subsidiary’s U.K. and Irish businesses.

T2In the meantime, Teva and Allergan have agreed to sell 15 currently sold generics and multiple drugs in the pipeline to Impax Laboratories in June 2016 for about $586 million, to win global antitrust approval. Also in June 2016, Teva agreed to sell a portfolio of high value generic drugs to Australia’s Mayne Pharma Group Ltd. for $652 million, as part of the divestiture process ordered by the FTC.

Selling its U.K., Ireland, and Iceland assets is very important to Teva since the Allergan’s takeover would position the Teva as the world’s largest generics drugmaker, giving it greater negotiating power with governments and private-health insurers. While Teva has obtained the green signal from the EC for the Allergan deal, the approval from the FTC, which was expected to occur in June 2016, continues to be delayed. It remains to be seen whether Allergan’s generics portfolio and consolidation adds targeted value to Teva’s drugs pipeline and manufacturing capabilities in the long term.

Stock Performance

T3Teva’s stock stood at $50.52, rising 0.42%, at the close on Thursday, July 7th, 2016, having vacillated between an intraday high of $50.70 and a low of $50.07 during the session. The stock’s trading volume was at 5,794,347 for the day. The Company’s market cap was at $51.87 billion as of Thursday’s close.

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