Success of Allergan integration is the human capital, says Teva

02-Aug-2015 - Last updated on 03-Aug-2015 at 13:36 GMT

Teva announced last week its plans to acquire Allergan

Related tags Teva Generic drug Pharmaceutical industry

"People are the essence of the company going forward," said Teva, referring to the news that the world's largest generic drug maker will purchase Allergan's generics business for $40.5bn, at its Q2 financial results press conference on Thursday.

The recent Allergan deal was received favourably by the financial markets with analysts anticipating further gains from the Israeli firm in the year to come.

"Allergan have a good team, we have known them for a long time. Teva also has an amazing team - two of the best teams on both sides," said Michael Hayden, President of global R&D and Chief Scientific Officer of Teva, at the Q2 call. These teams will change the dynanics of the generics industry with this company, he added.

"We need to have the best teams - the success of this integration is the human capital. We are taking this very seriously." With this acquisition, Teva said it will focus on building value for patients and the healthcare industry that it serves.

The Israeli company will now account for more than 20% of the global generics market while Allergan will receive $33.75bn in cash and a 10% stake in Teva, valued at $6.75bn.

In line with this acqusition, Teva has withdrawn its takeover bid for rival pharmaceuticals company Mylan NV, which it had proposed in April. Teva announced its $3.5 billion purchase of Auspex in March of this year.

In recent months, Teva has stated that generic drug companies should combine for cost cutting and to achieve greater efficiency. The acquisition will make Teva more efficient by reducing its costs and workforce. It will then find itself better positioned in pricing discussions with industry key players such as insurers and employers, the company said.

Generic drug prices, although lower than branded, have risen due to low supply and little competition in the market in recent times.

Since taking up the role in February of last year, Erez Vigodman, president and CEO of Teva, has cut costs to improve profitability ahead of new competitors entering the generics market. He worked to make the company less dependent on Copaxone - it accounted for 50% of profits at one stage - as its rival Sandoz, Novartis AG's generics division released Glatopa, a competing product to Copaxone, to market earlier this year.

Vigodman said in a statement: "Through our acquisition of Allergan Generics, we will establish a strong foundation for long-term, sustainable growth, anchored by leading generics capabilities and a world-class late-stage pipeline that will accelerate our ability to build an exceptional portfolio of products - both in generics and specialty as well as the intersection of the two."

In his statement on the announcement, Brent Saunders, CEO and president of Allergan, said the deal willhelp his company build its "global-branded pharmaceutical business and strengthen our financial position."

Subject to satisfaction of the closing conditions, Teva expects the acquisition to close in the first quarter of 2016. "We expect to complete the acquisition of Allergan’s global generics business in the first quarter of 2016, which will further diversify our business and support the continued creation of shareholder value," said Vigodman.

Revenues in the second quarter of 2015 amounted to $5bn, down 2% compared to the second quarter of 2014. Excluding the impact of foreign exchange fluctuations and the sale of its U.S. OTC plants in July 2014, revenues grew by 6%.

Generic medicine revenues amounted to $2.5bn, falling 2%, and accounted for half of total revenues in the quarter. Gross profit from the generic medicines segment amounted to $1.2bn, an increase of 14% compared to the second quarter of 2014. Gross profit margin for the generic medicines segment increased to 48.6%, from 41.7% in the second quarter of 2014.

R&D expenditures (excluding equity compensation expenses and purchase of in-process R&D) amounted to $357m, compared to $340m in the second quarter of 2014.

R&D expenses were 7.2% of revenues in the quarter, compared to 6.7% in the second quarter of 2014. R&D expenses related to the generic medicines segment amounted to $134m, up 7% compared to $125m in the second quarter of 2014. In local currency terms, expenses increased 12% - the result of additional development activities for the U.S. market. R&D expenses related to the specialty medicines segment amounted to $220m, up 4% compared to $211m in the second quarter of 2014.

In local currency terms, expenses increased 6%, mainly due to investments in the assets acquired via the Labrys and Auspex deals.