Teva Pharmaceuticals (Nasdaq: TEVA; TASE:TEVA) is taking 2004 by storm, although its share price is volatile in the short term. Last week, it was reported that Teva expects to launch 80-mg dosages of its generic version of Purdue Fredrick's ethical OxyContin. The ethical analgesic has annual sales of $1.5-1.9 billion in various dosages. Sales of the 80-mg dosage are estimated at $600-680 million a year.
Sales of Teva's generic version, which will have a 180-day exclusivity sales period, could reach $120-140 million, and the net profit is expected to total $50-70 million. These are good numbers, even for Teva, but the main contribution to the company's revenue this year probably won't come from the launch of new generic drugs, but from its merger with Sicor (AMEX:SCRI).
Sicor's shareholders are scheduled to approve Teva's acquisition of the company for $3.4 billion, including $2 billion in cash and $1.4 billion in a share-swap deal. Sicor produces active pharmaceutical ingredients (APIs) for generic drugs and injectible generic products. Sicor posted $29 million in profit on $143 million on revenue in the third quarter of 2003, compared with a profit of $28 million on $133 million in revenue in the preceding quarter.
Sicor is considered one of the fastest growing large generic drug makers. Sicor expects $550 million in sales in 2003 and $620 million in 2004. This will be a major contribution to Teva, which posted a profit of $157 million in profit on $813 million in revenue in the third quarter of 2003, compared with a profit of $137 million on $764 million in revenue in the preceding quarter.
Teva will probably post a profit of over $620 million on over $3.2 billion in sales in 2003 as a whole. Analysts predict that Teva will post a profit of $800 million on $3.8 billion in revenue in 2004, numbers that do not include the Sicor deal, which could increase Teva's profit to almost $1 billion on $4.5 billion in sales.
"Sicor's shareholders are scheduled to convene on Friday to approve the merger. If they approve it, as is expected, the next stage will be the final approval by the US Federal Trade Commission (FTC)," says IBI analyst Elah Alkalay. "FTC approval is expected by early February, and if granted, we assume that the merger is a done deal.
"I assume that we'll receive more information from Teva about the merger and consolidation process of the two companies' businesses during 2004 before the publication of Teva's 2003 financial report. By early February, Teva will probably file a prospectus with the Security and Exchange Commission (SEC), which should dispel some of the uncertainty about when and how it plans to raise the necessary resources to complete the merger and subsequent business development."
Teva will have no problem financing the acquisition. It has letters of commitment from Bank Hapoalim (LSE:BKHD; TASE:POLI) and Bank Leumi (TASE:LUMI) to provide $1.1 billion in credit, and Teva has other financing option as well. One, on which everyone is betting, is an issue of convertible bonds on Wall Street. The capital market is talking about an issue of almost $1 billion in bonds, at attractive dollar interest rates. In addition to the Sicor acquisition and money-raising, several other significant events are expected at Teva this year that will probably have a major impact on its business.
I'll begin with the greatest threat. "Biogen (Nasdaq:BGEN) announced that during the first quarter, it will conduct the preliminary assessment of Phase III clinical trial results for Antegran, a treatment for multiple sclerosis (MS), which it developed jointly with Elan Corp. (NYSE; Dublin:ELN; LSE:ELA)," says Alkalay. "If the results are satisfactory, Biogen and Elan will file an application for approval with the US Food and Drug Administration (FDA) within the coming months. In this scenario, a product can be expected to reach the market within a year of submission, during the first half of 2005.
"If the results are not satisfactory, they won't be published and the companies will complete the clinical trials by the end of 2004, so a product will reach the market, assuming the trials succeed, in the first half of 2006. It's hard to predict the effect of the product on the market now, but a new product will unquestionably intensify the competition and weaken the [market position] of existing products."
Anxiety may be premature, but Biogen is definitely a threat. After all, its MS treatment, Avonex, is still the market leader in the US, although its lead over Teva's Copaxone is shrinking. NOTE: This article is the first of a two-part series. Part two will be published next week.
Published by Globes [online] - www.globes.co.il - on January 15, 2004