Teva Increases Generics Leadership Worldwide with Unexpected Acquisition of Barr Pharmaceuticals

Terms of Teva's Acquisition of Barr

Global generic giant Teva Pharmaceuticals has formally announced the 100% acquisition of Barr Pharmaceuticals, the world's fourth-largest generics player, for US$7.46 billion—three times Barr's annual sales in 2007 and a 42% premium on Barr's closing price earlier last week. The acquisition is set to be completed by late 2008, with Teva also taking on Barr's outstanding debt of US$1.5 billion. Although the merger has been unanimously approved by the U.S. firm's board of directors, Barr is eligible to terminate the merger agreement upon accepting an "unsolicited" superior offer before merger approval by Barr stockholders; the U.S. firm will also be required to pay a termination fee of US$ 200 million.

Teva to Gain Increased Global Pharma Market Access

According to Teva, the acquisition of Barr Pharmaceuticals will:

• increase its U.S. market access, thereby consolidating its leadership position in the U.S. generics market;
• strengthen its position in the Eastern and Central European Markets;
• boost its speciality pharmaceutical platform product portfolio with the addition of Barr's women's health portfolio;
• create cost synergies, leading to a minimum of US$300 million in annual cost savings over three years; and
• help it achieve its strategic plan of doubling revenues to US$20 billion, with net income margins of at least 20% by 2012.

The new company formed following Teva's acquisition of Barr is set to have over 500 products marketed in more than 60 countries worldwide. The new company will reportedly possess over 200 ANDAs and 70 first-to-file Para IV challenges.

Outlook and Implications

Media speculation over the acquisition only surfaced this week, providing an element of surprise to the announcement of the deal (see Israel - United States: 17 July 2008: Speculation Mounts over Teva's Acquisition of Barr Pharmaceuticals).

Once completed, the acquisition will make the new company the unprecedented generics market leader. Based on 2007 revenues, the newly formed company will have revenues of over US$11 billion, with second-placed Sandoz (Germany) some way behind at US$7.46 billion. Given the size of the deal and in light of Teva's acquisition of U.S. firm Ivax in 2005, anti-trust issues could be raked up by the U.S. and European Union (EU) trade authorities, thereby instigating divestitures of some operations for the deal to go through. According to Barr CEO Bruce Downey, divestures involving the U.S. firms currently marketed oral contraceptive products and several pipeline products are likely for the deal to go through.

Teva's proprietary product portfolio currently consists of only two drugs—Copaxone (glatiramer acetate) and Azilect (rasagiline). Although Azilect's latest clinical trial results have touted it as a blockbuster molecule, Teva's ambitions to extend the patent on its leading proprietary molecule, Copaxone, were dashed when its FORTE trials results reported findings of no added efficacy at a higher dosage (see Israel: 7 July 2008: Copaxone Shows No Added Efficacy at Higher Dosage, Reveals Teva). Additionally, Teva’s Copaxone enterprise has been threatened by Momenta-Sandoz's (U.S.-Switzerland) Para IV filings and Mylan-Natco's (U.S.-India) marketing agreements for generic Copaxone (see Israel - United States: 14 July 2008: Copaxone Faces Generic Treat from Momenta). Copaxone’s patent reportedly expired during the drug development process with complete patent expiration on the drug due in 2014 and 2015 in the United States and Europe, respectively. Additionally, the drug's orphan status in the United States expired in 2003. Therefore, while Barr’s proprietary oral contraceptives range will add to Teva’s proprietary product portfolio, the value of U.S. firm’s proprietary product portfolio is small. Barr’s annual oral contraceptive products sales stood at US$459 million—a relatively small amount considering that Copaxone generated over US$1 billion in 2007. Nonetheless, Barr’s oral contraceptive portfolio will extend Teva’s therapeutic focus, with the Israeli firm having limited presence in this therapeutic indication.

Given Barr’s currently small proprietary product portfolio, Teva's decision to acquire Barr is likely to be based on the U.S. firm’s generic enterprise. The acquisition will provide Teva with greater generic market access in the short to medium term, with a greater presence in the U.S. and European markets. Barr currently has over 30 ANDAs filed in the United States, with 19 ANDAs having been approved in 2007. The firm has over 25 patent litigation suits in several stages, with the total value of patent challenges from Barr estimated at US$12 billion. As indicated by Teva, the Barr acquisition would offer it greater access to the Central and Eastern Europe markets. Barr’s largest markets include Germany, Poland, Russia, and Croatia; it is the generics market leader in the latter—a primarily branded generics market with no substitution allowed—with a 35% market share, owing to its Pliva acquisition.

The global generics industry is undergoing consolidation, but this is the first time that top-five generics players have engaged in an acquisition among themselves. Overall, the deal ranks as the fourth-largest deal for the year to date, with the Roche-Genentech (Switzerland-U.S.), Novartis-Alcon (both Switzerland), and Takeda-Millennium (Japan-U.S.) acquisitions taking the first three spots. Barr Pharmaceuticals, which posted very promising sales of US$2.5 billion (up 58%) in 2007, accepted Teva's offer owing to Teva's respectable valuation of the U.S. firm. Big-ticket acquisitions have proven counter-productive to firms in the short to medium term, with Mylan still grappling with its acquisition of Merck KGAa's (Germany) generics business. Additionally, Teva previous big-ticket acquisition of Ivax took over a year to complete, with integration extending into early 2007. Therefore, Teva's objective to complete the acquisition of Barr by the end of the year may be too optimistic.