Pfallergan Makes Pfizer Teva's Largest Shareholder

November 25, 2015
By Mark Terry, BioSpace.com Breaking News Staff

One of the side aspects of the pending Pfizer -Allergan deal, is that Pfizer will end up owning a 10 percent share in Israel-based Teva Pharmaceutical Industries Ltd.

In July, Teva acquired Allergan plc’s generic drug business for $40.5 billion. Under the terms of the deal, Allergan will receive $33.75 billion in cash and $6.75 billion in stock. That amounts to a 10 percent ownership stake, which will now be owned by Pfizer plc, once the deal is completed.

The Teva-Allergan deal is expected to be completed in the first half of 2016. The Pfizer-Allergan deal is expected to be wrapped up in the second half of 2016. Prior to that, the largest Teva shareholder was Fidelity Management and Research (FMR), with 5.6 percent ownership.

Ian Read, chief executive officer of Pfizer, as part of the deal with Allergan, takes on the rights and obligations of the Allergan-Teva deal. Included in that is an agreement that bars the sale of Teva shares to Teva’s competitors and to activist shareholders for one year. This was put in place to protect Teva against a takeover attempt. “In addition,” Shiri Habib-Valdhorn writes in Globes, “under the agreement as long as Allergan holds 5 percent or more of Teva’s shares, it is obligated to vote at shareholders meetings in accordance with the recommendations of the Teva board of directors, except in certain cases.”

Pfizer and Teva have had their differences, typically over generics, with Teva trying to break the patents on some of Pfizer’s protected drugs. For example, a lawsuit that ended in 2013 over a generic version of Pfizer’s Protonix ended with Teva being forced to pay Pfizer $1.6 billion in compensation.

This relationship is an interesting one, taking into consideration Pfizer’s weakness in terms of near patent-cliff problems. The Motley Fool wrote in August after Pfizer’s second-quarter earnings, that it should pay close attention to the Allergan-Teva deal. Pfizer’s Global Established Pharmaceutical Segment’s revenues dropped by 14 percent year over year, and the company has been looking at ways to reformulate or sell this business unit for a while.

Pfizer’s established products create about $21 billion a year. With drugs like Celebrex, Zyvox, and Lyrica getting beat up by generic competition, that number is expected to drop. Earlier this year Pfizer acquired Hospira, Inc. Part of that deal was Hospira’s biosimilars pipeline. That won’t show profit for a while, though. Still, biosimilars and generics mine the same markets, competing against branded drugs.

Of course, there’s already talk about plans for the newly merged Pfizer-Allergan company to split into two companies by 2018, one focused on older, mature drugs, and one focused on research-and-development-oriented new drugs. If that were to occur, the Hospira biosimilars business would likely go with the faster-growing company. The question is whether the company’s investment in Teva would also play a role.