Over the past few weeks, US biopharmaceutical company Cephalon has faced a hostile takeover bid from Canadian company Valeant Pharmaceuticals International Inc. (NYSE: VRX). The Americans said that Valeant's offer was not in the interests of Cephalon's shareholders, while the Canadians set the shareholders a deadline: give a positive response by May 12.
This is where Teva comes into the picture. Not only was Teva Cephalon's white knight, rescuing it from what its management saw as an unwelcome bid, but Cephalon could turn out to be a white knight for Teva, or at least for Teva's share price.
Teva's share has been falling for over a year. Since the peak it reached in March 2010, a few days after it announced its previous big acquisition (Ratiopharm), Teva has lost almost 30% of its value. Today, with the announcement of the Cephalon acquisition, the share price quickly rose by 2% on the local stock exchange, before trading was suspended. In early trading on Wall Street, the share price is up 2.4%.
Only a few days ago, "Globes" wrote of Teva's share that its obituary had been written prematurely. "Teva could suddenly come out with another acquisition that will give it a new market and expand its activity, and will perhaps at last send the share northwards," we wrote.
Of course, this was not written with any special prophetic insight: Teva has demonstrated several times in the past that it is a company that makes acquisitions, even large acquisitions. In the strategic plan for 2010-2015, which it unveiled at the beginning of 2010, the company said that a third of its projected growth would come from acquisitions.
It could be that now, after two large acquisitions (Ratiopharm and Cephalon) and two smaller ones (Theramex and Infarmasa), the contribution of acquisitions to growth will be higher.
Cephalon is the third largest acquisition Teva has made, after Barr in 2008 and Ivax in 2006. However, in contrast to those two acquisitions, this time the acquired company produces original rather than generic drugs.
For a long time now, Teva, the world's largest generic drugs company, has not been a classic generics company: its original drugs account for more than a quarter of its sales. Multiple sclerosis drug Copaxone alone is estimated to contribute about a third of Teva's profits.
Teva is of course aware of its problematic dependence on one drug (a problem to which much of the decline its share price over the past year has been attributed), which is why it is making efforts to diversify its activity, through acquisitions that put it into new markets or new areas of medicine.
Today, Teva has undergone a substantial change. The acquisition of Cephalon turns it from a generics company with original activity, into a much more significant original drugs company.
This has its positive aspects: diversification, a promise of growth through a rich set of products, expansion of Teva's areas of development. There is however also a negative aspect: Teva will have to cope more with the "patent cliff" of original drug companies, the situation in which patents that protect important and profitable drugs expire, and generic drugs enter the market. Up to now, Teva has been on the side of the winners in this situation. Henceforth, it will have to gear up to contend with generic competition.
Published by Globes [online], Israel business news - www.globes-online.com - on May 2, 2011
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