Allergan President and CEO Brent Saunders said Monday the sale of its generics business would allow the company to double down on its higher margin, higher growth branded drugs business.
Saunders spoke on CNBC's "Squawk Box" after Israel's Teva Pharmaceutical (Tel Aviv Stock Exchange: TEVA-IL) announced plans to purchase Dublin-based Allergan's generic pharmaceuticals business for $40.5 billion.
"If you look at what we've been doing, it's always been about moving up the value chain, moving up the margin, innovation chain of pharmaceuticals," Saunders told CNBC. "This really just moved that up further." In March, the company formerly known as Actavis completed its acquisition of Allergan, at which point it adopted the acquiree's name. At the time the deal was announced, Actavis had done about $100 billion of deals in the past year alone.
Saunders said Allergan had roughly $42 billion in debt, primarily from the Actavis-Allergan deal. The proceeds from the Teva acquisition should net out to about $36 billion after tax, leaving the company with essentially no net debt, factoring in the free cash flow it generates, he said.
"When you think about it, we weren't going to be a consolidator of the generic business. We've always said that. We weren't going to be a buyer of future generics. We were going to be a buyer of brands," Saunders said. "Teva is a natural consolidator. This is their legacy. They're very good at it. They have global scale."
Israeli pharmaceutical giant Teva is the world's largest generic drugmaker. It said in a statement that the acquisition would provide patients with more access to affordable medicines. Statements from both companies say the deal will see Allergan receive $33.75 billion in cash and shares of Teva valued Monday at $6.75 billion.
Teva said Monday it had withdrawn its proposal to purchase rival generic-maker Mylan after reaching the agreement with Allergan. Mylan had fought Teva's effort, citing its view that Teva focused on returning cash to shareholders rather than reinvesting in the company. Saunders said he thought Teva offered a "very nice premium" for Mylan. He added that Teva had strengthened its management team with the addition of new CEO Erez Vigodman and Allergan's head of generics.
Separately, Teva reported second-quarter profit that beat estimates and raised its full year 2015 outlook. In preliminary results, Teva said it earned $1.43 per diluted share excluding one-time items in the April-June quarter, 15 percent higher than a year earlier. Revenue slipped 2 percent to $4.97 billion but rose 6 percent excluding the impact of foreign exchange fluctuations and the sale of U.S. over-the-counter plants. Teva was forecast to have earned $1.31 per share in the second quarter on revenue of $4.91 billion, according to Thomson Reuters.
Teva will publish full results on Thursday. It raised its 2015 EPS estimate to $5.15 to $5.40 from $5.05 to $5.35. The results "further demonstrate Teva's continuous momentum and significantly strengthened fundamentals, improved generics and specialty businesses and ability to drive organic growth," Vigodman said. Teva is Israel's largest drug company and has long been a source of pride for Israelis. The company dates back to 1901, when its founders launched a small importer of medications.
According to the company's website, it began producing drugs in the 1930s.
Associated Press and Reuters.