Wider gap in generics

Teva snaps up Barr for $7.4 B

August24th,2008
Chris Anderson
JERUSALEM—Looking to further widen the gap between it and its nearest generic competitor, Teva Pharmaceuticals—the largest generics company in the world—announced in mid-July its intent to acquire New Jersey-based Barr Pharmaceuticals in a cash and stock deal worth more than $7.4 billion. The hungry generic maker recently closed on its $350 million acquisition of Bentley Pharmaceuticals and also purchased CoGenesys earlier this year for $400 million.

"The combination of our two companies provides an outstanding opportunity strategically and economically. It will enhance our market share and leadership position in the U.S. and key global markets, further strengthen our portfolio and pipeline and provide upside to our strategic plan," says Teva CEO Shlomo Yanai.

Yanai says the deal will put the Israeli company ahead of its stated plan to double its overall sales by 2012, a goal which was calculated based on organic growth and smaller acquisitions, such as the Bentley and CoGenesys deals. With Barr, it adds $2.5 billion in annual sales and combined sales for the two companies were $11.9 billion in 2007, a number that is expected increase by 15 percent this year.

In all, Barr is expected to add important economies of scale for Teva—an important factor in the lower margin generics business—and provide as much as $300 million in savings to the company through consolidation.

The deal also makes Barr the latest global generic drug maker to succumb to the consolidation frenzy that is sweeping the generic sector.

Other recent billion-dollar-plus generic deals include Daiichi Sankyo's $4.6 billion agreement to acquire controlling interest in Indian generic drug maker Ranbaxy and Fresenius' United States market entry via its $3.7 billion purchase of APP Pharmaceuticals. Also ongoing is the bidding for Czech generic company Zentiva by sanofi-aventis, whose $1.9 billion bid was rebuffed by the company.

The acquisition of Barr is of a slightly different flavor than others it has completed 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, 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 in a news report in The Jerusalem Post.

Further, according to Barr Chairman and CEO Bruce Downey, the combination of the two companies makes sense due to the fact there is very little overlap in the areas where each markets their generic products.

"If you look at our generics business the products are very complementary with Teva's and have very little overlap. If you look at the markets where we are strong ex-U.S. to help propel them to a higher level in eastern and central Europe [and] it will allow us to put separation between Teva and companies here in the U.S.," says Downey.

Yanai concurs, adding "Even though we are playing on the same ground for a long time we have been playing different ways—and that is why we are so excited about this deal." DDN
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