Teva snatches Ratiopharm away from Pfizer and Actavis with nearly $5B offer

The acquisition is Teva’s largest since its 2008 purchase of Barr Pharmaceuticals Inc. for $7.4 billion

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JERUSALEM—In the wooing of Ratiopharm GmbH, Germany's second largest generics producer and the sixth largest generic drug company worldwide, it was well-known that Teva Pharmaceutical Industries Ltd. was one of three major players gunning for the company. But much of the attention was on Actavis, which was thought to have been bidding highest, and Pfizer Inc., which came in late but with a lot of apparent interest and energy. But with about $5 billion to bring to the table, Teva has won the race and come away with the prize.

The losing bidders may turn their sights to Stada Arzneimittel AG, another German generic-drug maker, according to Thomas Maul, an analyst at DZ Bank AG.

Teva announced March 18 that it has entered into a definitive agreement to acquire Ratiopharm, subject to certain conditions, including relevant regulatory approvals. On a pro forma basis, the combined company would have had 2009 revenues of $16.2 billion. Teva expects to complete the transaction by year-end 2010.

The acquisition is Teva's largest since its 2008 purchase of Barr Pharmaceuticals Inc. for $7.4 billion. Ratiopharm gives the Israeli drugmaker a top spot in the $8.6 billion German market for copied drugs, the world's second-largest after the U.S., according to Norwalk, Connecticut-based IMS Health Inc.

Several analysts have said that the acquisition was necessary to Teva's growth goals, as it had limited options outside the United States for that growth. Although the U.S. market is Tevas's biggest, the company's CEO, Shlomo Yanai has noted that he needs to reduce the company's dependence on that market. Some 60 percent of its sales are U.S. sales, and the company wants to bring that under 50 percent by 2015.

In a conference call about the deal, Yanai said that one of "the most exciting aspects of this deal is our new position in Germany. Germany is Europe's largest markets for generics, with an estimated $8.8 billion dollars in 2009."

"Ratiopharm is one of the most trusted brands in Europe, and we would continue to nurture that reputation," he also noted, adding, "This deal also has very compelling economics, and we estimate that within three years it will generate at $400 million."

Gilad Sarig, a Tel Aviv-based analyst for Bank Hapoalim, has said that the acquisition allows Teva to "check off Ratiopharm and move on to the next target" and he predicts Teva will probably next seek deals in Japan.

Teva plans to spend $15 billion to $20 billion on acquisitions through 2015, Eyal Desheh, Teva's chief financial officer, told analysts last month. It has already spent $19 billion in the past five years, and about $6 billion of the company's revenue growth will come from acquisitions, Desheh said.

Also on Teva's corporate mind is that fact that by 2015, it will lose $1 billion in revenue as its top-selling product, the multiple sclerosis drug Copaxone, which isn't generic, begin to face competition from potential generic versions and new multiple sclerosis drugs.

"With this acquisition Teva not only significantly enhances its presence in Europe, but also further diversifies the company away from Copaxone," Ken Cacciatore, a New York- based analyst for Cowen & Co., wrote in a note to investors.

Zacks Equity Research reported in an analyst note, "We view the Ratiopharm acquisition as a smart strategic move by Teva. This deal should help the company strengthen its position in key European markets, especially in Germany, the second largest generic market in the world…Teva should also gain a strong foothold in rapidly growing generic markets like Spain, Italy and France."

"In addition to possessing a solid portfolio of molecules, Ratiopharm's know-how in biosimilars should stand Teva in good stead given its interest in building its portfolio of biopharmaceutical and biogeneric products," Zacks adds.

"This transaction is perfectly aligned with our long-term strategy in which Europe is an important pillar and growth driver," notes Teva's Yanai.

Ratiopharm's portfolio includes 500 molecules in over 10,000 presentation forms covering all major therapeutic areas marketed in 26 countries, Teva notes, in addition to "valuable know-how in biosimilars, consisting of a number of products in advanced stages of development and a well-established sales and marketing team."

The combined entity will have 40,000 employees worldwide, of which 18,000 will be based in Europe. The German headquarters site for the combined entity will be located in Ulm, Ratiopharm's current headquarters.

The combined entity will have a strong European footprint, holding the leading market position in 10 European markets, including key markets such as the united Kingdom, Hungary, Italy, Spain, Portugal and the Netherlands, as well as a top-three ranking in 17 countries, including Germany, Poland, France and the Czech Republic. In addition, the transaction will nearly double Teva's sales in Canada.

"Teva and Ratiopharm have similar corporate cultures and share a strategic vision which makes this combination a natural fit," Yanai says. "Together, we will be able to realize the vision of increasing patients' access to safe, high-quality, affordable medications even more quickly and deliver even more value to our stakeholders across the globe."

Ludwig Merckle, the representative of Ratiopharm's family owner said in a prepared statement, "The separation of Ratiopharm is a painful step for us as the founding family. Taking this as given, I am confident that this is a good solution. Finding the best home for Ratiopharm was a vital element in this process. I believe that joining forces with the world's largest generic company will enable Ratiopharm to continue its path of growth and success."

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