Teva Acquires Ratiopharm

| About: Teva Pharmaceutical (TEVA)

Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) recently announced the completion of its second major acquisition in a period of two years. The company announced that it has acquired Germany’s second largest generics producer, Ratiopharm, for an enterprise value of €3.625 billion plus accrued interest of €186 million (a total value of approximately $4.95 billion).

Teva’s last major acquisition was that of Barr Pharmaceuticals, a US-based multinational generic pharmaceutical company with operations mainly in the US and Europe. This acquisition boosted Teva’s product portfolio which now includes several generic pharmaceutical products as well as women’s health products.

Teva is no stranger to acquisitions. In addition to the Barr and Ratiopharm acquisitions, other major acquisitions in Teva’s history include those of Ivax Corp. (January 2006) and Sicor Inc. (January 2004).

Ratiopharm Buy a Smart Move

We view the Ratiopharm acquisition as a smart strategic move by Teva. With this acquisition, the company will hold the top position in the European generics market. This deal should help the company strengthen its position in key European markets, especially in Germany, the second largest generic market in the world, which is valued at approximately $8.8 billion.

Teva should also gain a strong foothold in rapidly growing generic markets like Spain, Italy and France. The company expects this acquisition to increase sales from its European business.

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.

Moreover, this deal should help Teva compensate for the loss of revenues that it would face once its lead branded product, Copaxone, is exposed to generic competition. Companies like Sandoz, Momenta Pharmaceuticals, and Mylan Labs (NASDAQ:MYL) are all seeking to bring their generic versions of Copaxone to market.

Teva expects to achieve synergies of approximately $400 million within three years of closing.

Our Take

We currently have a Neutral recommendation on Teva, which is supported by a Zacks #3 Rank (Hold). While we expect the company to continue performing well thanks to new product launches, both generic and branded, we remain concerned about the intense competition and pricing pressure in the generics market.

Moreover, the Copaxone patent challenge remains a matter of concern. With Copaxone contributing more than 20% to total revenues in 2009, the entry of generic versions would be a major setback for the company.

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