Analysts say Allergan's betting it'll get further growth from its branded drugs business by selling its generics unit, so look for more deals. Fred Katayama reports.
Another mega deal among drugmakers. Israel's Teva Pharmaceuticals is buying Allergan's generics business for $40.5 billion in cash and stock. Analysts say Allergan's betting that it'll get further growth from its branded drugs business by selling off its generics unit Piper Jaffray analyst David Amsellem sees the Botox maker using the nearly $34 billion in cash it'll get from the deal to possibly acquire other branded drug companies like AbbVie, saying, "I doubt they'll stand pat. A larger merger with a big pharma company wouldn't surprise me... It wouldn't surprise me if Allergan is looking at AbbVie and saying, 'Lots of cash flows there, relatively reasonable price, some pipeline there.' " As for Teva, adding Allergan's generics unit will vault the world's largest generic drugs maker into the ranks of the top ten pharmaceutical companies with combined revenue of $26 billion. Allergan wasn't willing to sell that unit when Teva eyed it last year, so Teva made a hostile offer for rival Mylan instead. But it is abandoning that bid as a result of this deal. Shares of Teva and Allergan bounced higher on the news, while Mylan's stock sank. The industry has been rocked by a series of deals. Allergan merged with Actavis in March, and it just bought drug developer Naurex on Sunday.