Why The $40.5 Billion Acquisition Of Allergan's Generic Business For Teva Is 'Right Deal At The Right Time'

Teva Pharmaceutical Industries Ltd (ADR)TEVA and Allergan PLC AGN on Monday announced that the former would be acquiring latter's generic business in a $40.5 billion cash and stock deal.

Ronny Gal, analyst at Sanford C. Bernstein, was on CNBC to discuss how this deal benefits Teva and the outlook for M&A in healthcare.

Right Deal At Right Time

"What Teva has right now is a business which is about half generics and half brands," Gal began. "The generic business is doing okay, this will help it quite a bit. On the branded side they have one dominant drug Copaxone, which is beginning to decline."

He continued, "The near-term acquisition in the generic business will really help smooth the decline of that product and then between 2017 and 2020 they have a new wave of pipeline product maturing on the branded side which will re-balance the business. So for them that's actually as kind of the right deal at the right time."

More Consolidation To Come

Gal was asked if he expects more consolidation to happen in the healthcare space in the months to come. He replied, "I think we got more consolidation to do and the reason is two-fold. One, as the healthcare sector is becoming literally too big for the U.S. market, there is a extra capacity that can be taken out, reducing the overall cost of healthcare."

"And as you start from insurance -- where they are ultimate buyers -- begin to consolidate, basically everybody down the chain from them has to consolidate in return. The only people who do not consolidate are the biotechs which essentially come up with new generation of drugs. But even those when they mature and become kind of more established pharma companies, they begin to consolidate," Gal concluded.