Teva buys Barr Pharmaceuticals

$7.46b. purchase of contraceptive pill and generic drug manufacturer is one of largest in Israeli history.

Teva 88 224 (photo credit: Ariel Jerozolimski)
Teva 88 224
(photo credit: Ariel Jerozolimski)
Facing competitive pressure on sales of its own flagship drug Copaxone, Teva Pharmaceuticals Industries Ltd., the world's largest generic drugmaker, completed the purchase of Barr Pharmaceuticals Inc., a maker of contraceptive pills and generic drugs, for estimated $7.46 billion on Friday. The purchase is one of the largest ever in Israel, following Teva's purchase of Ivax for $7.8b. "The acquisition fits into Teva's long-term strategy of consolidation in the generic market," said Eran Cohen, an analyst at Migdal Capital Markets, on Thursday when reports of the planned acquisition surfaced. "Barr Pharmaceuticals is considered the number one player in the generic market in the US." Barr Pharmaceuticals is traded on the New York Stock Exchange and has a current market value at $5.2b. The New Jersey-based drugmaker, like Teva, specializes in generic medications, but also makes 30 drugs developed in-house. In 2007, the US company, generated a profit of $128 million, and its total income over that year was $2.5b. Barr Pharmaceuticals distributes approximately 120 generic drugs and 70 more of its products are awaiting FDA approval. The company also manufactures more than 1,000 branded, generic drugs. Apart from the US, it's main market, the company is also active in Europe, especially in Germany, Croatia, Russia and Poland. "In the past, Teva's acquisitions focused mainly on acquiring assets that provided it with delivery technologies and/or geographic exposure, whereas a potential acquisition of Barr Pharmaceuticals would provide Teva with access to the oral contraceptive market [Barr accounts for about 21% of the total market], enhance Teva's presence in Central and Eastern Europe, and be an opportunity to eliminate duplicate infrastructure in the US," said Ricky Goldwasser, an analyst at UBS Investment Research. Commenting on the potential of the deal on Thursday, Limor Gruber, an analyst at Psagot Ofek Investment House, said Barr Pharmaceuticals was expected to generate more than $1b. from generic drug sales in the US in 2008, while Teva's generic drug sales were estimated to amount to $4.2b. On Thursday, Barr Pharmaceuticals rose the most since October 2000, gaining 17% to $54.95 in late-morning trading on NYSE. Teva rose NIS 1, or 0.7%, to NIS 142.20 at the close of trading in Tel Aviv. "As in all of Teva's deals, this acquisition, if carried out, would probably also be a combined cash-and-share exchange deal," Cohen said beofre the deal was completed. "Thus a potential deal of this size would clearly entail raising more debt and a large equity payment. Investors should also expect post-acquisition write-offs and a decrease in the profitability of Teva shares in the first year of acquisition. From the second year onwards, investors can expect to start to enjoy the fruits of the deal." Last week, Teva shares dropped the most in two years in Nasdaq trading following test results that could make it easier for competitors to sell copies of its top-selling Copaxone medicine, a treatment for relapsing-remitting multiple sclerosis, which accounted for about 18% of 2007 sales. Since the beginning of the year, Teva has been an active player in the market for mergers and acquisitions with two deals reported so far. It paid $400m. for the purchase of CoGenesys, and its second purchase, set to close soon, is Bentley Pharmaceuticals, Inc.