May 11, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
The complicated three-way takeover waltz being conducted between Pittsburgh, Penn.-based Mylan Inc., Israeli company Teva Pharmaceutical Industries Ltd. and Perrigo Company took another weird turn Monday, after Mylan said that while it still views Teva’s unsolicited $40.1 billion bid as too low, it might want to acquire Teva itself eventually.
Earlier this month Mylan made an unsolicited $28.9 billion bid for Perrigo, a move which Wall Street has taken as a catalyst for Teva to pounce before Mylan becomes a larger, and much more expensive, target. But Perrigo Company rejected that offer almost immediately, saying it “substantially undervalues” Perrigo and “its future growth prospects and “is not in the best interests of Perrigo’s shareholders.”
Now, however, the landscape is changing An executive with Mylan told Reuters that recent comments from Robert J. Coury, Mylan’s executive chairman, make it clear that if Mylan is able to cement its deal with Perrigo, it might go shopping again—and this time to buy Teva, not be bought.
“We were just saying in a hypothetical situation, if it ever were to happen after all these other things, the only way it could happen is with us,” Mylan Chief Executive Officer Heather Bresch told the news service, saying Mylan is still wary of antitrust issues.
A Teva spokesperson declined to comment. Meanwhile, other companies that have felt the ripple effects of these ongoing machinations have seen some unexpected windfalls: Abbott Laboratories , who is now the largest stakeholder in the company after selling its generic drugs unit to Mylan last February, said recently it will use that money to do some of its own M&A.
Abbott sold its generic drugs unit in exchange for around 110 million shares of Mylan—which means it’s been reaping the gains of a major boost to its coffers.
Abbott’s equity position in Mylan increased “well north of $7 billion,” according to Abbott’s Chief Executive Miles White said on an earnings callthat the company’s equity position in Mylan has ballooned from $5 billion at the time of the sale to “Well north of $7 billion” now.
“I am watching the great theater out there that is surrounding Mylan,” White told investors yesterday during a conference call. “I’m happy that we’ve been patient. It is clearly accruing value to us.”
As for new M&A, White said on the same call that whatever deals Abbott does do, they will be significant, saying, “I wouldn’t want you to think you’re only going to see ‘little’ out of me.”
After months of rumors about the deal, Teva finally made its first bid official last month in an $82 a share in cash and stock deal that would be the biggest takeover attempt so far this year. That bid is 23 percent above Mylan’s closing price April 16.
Any eventual merger could mean more than $27 billion in revenue from the combined companies, although Mylan’s public rebuke of its suite April 17, in which it raised concerns about antitrust issues, continues to worry analysts.
Teva lost patent protection for multiple sclerosis drug Copaxone, for which Mylan makes a generic, last July after a U.S. Federal Appeals Court found the patent protecting the drug would expire in May 2014, not September 2015.
“The attraction for Teva is that this deal would immediately allow them to grow and reduce their exposure to the impending drop in Copaxone sales,” said Sam Fazeli, an analyst at Bloomberg Intelligence in London, told Bloomberg Tuesday. “We still would have to consider the ramifications of antitrust regulation.”
Meanwhile, Perrigo Company remains steadfast in its rejection of a Mylan marriage, saying only it believes the company is worth more.
“Perrigo has a long history of driving above market shareholder value through consistent growth with a focus on profitability and operational excellence, which is reflected in our organic net sales CAGR goal of 5-10 percent for the next three years,” said Joseph C. Papa, chairman, president and chief executive, in a statement.
But Coury has continued to press the issue, saying a merger would be a perfect fit. “We have studied the potential combination of Mylan and Teva for some time and we believe it is clear that such a combination is without sound industrial logic or cultural fit,” Coury said.
The deal would have been just the latest shopping trip for Mylan, which has been attempting to build out its brand via bolt-on acquisitions, including women’s health specialists Famy Care and a massive $5.3 billion tax inversion acquisition of Abbott Laboratories. On Feb. 2 Mylan acquired several women’s health care business units from Mumbai, India-based Famy Care Limited. The deal was handled through Mylan Laboratories Limited, Mylan’s Indian subsidiary.
Mylan does have a host of attractive assets that have been tempting to larger drugmaker, including recent clues from the U.S. Food and Drug Administration (FDA) that Mylan’s generic ANDA, which is a stand-in for Natco’s multiple sclerosis drug Copaxone.Umer Raffat, a biotech analyst at ISI Evercore, said Monday that Mylan is poised to receive approval for that drug, which would quickly be rushed to market.
“My base case continues to be that Mylan will get its Copaxone approved,” said Raffat, “and it intends to commercialize it at the time of market formation.”
Mylan is one of the largest generics and specialty pharmaceutical companies in the world, with about 1,400 different products it markets. Teva also focuses on generics, as well as specialty drugs and active pharmaceutical ingredients. It has a portfolio of more than 1,000 molecules, employs more than 45,000 people worldwide and sells in 60 countries.
Analysts have continued to dismiss the possible marriage, saying rumors the two might be merging aren’t credible and would do very little to solve Teva’s current growth problems even if the companies did blend, said Wells Fargo analyst Michael Faerm.
Calling it strategically unlikely, Faerm said continued buzz about a possible deal between the Israeli drugmaker and Mylan was overblown.
Faerm said acquiring a generic drugs company is probably not a top priority for Teva, while Mylan has not indicated it would even be a willing seller, even if it currently in the process of designing a generic for Copaxone.
Teva reported earlier this year that each month of delay in generic competition for Copaxone adds about $78 million to the company’s net revenue and $0.08 to its share price.
David Maris, analyst with BMO, said in a note in March that most of the rumors so far about the deal have been baseless and are likely from sources “just putting out fluff.”
Maris’s skepticism is related to Mylan recently acquiring some of Abbott Laboratories’ sagging European generics as part of a tax inversion deal, pointing out that if Teva bought Mylan, the Israeli company would have two choices: Mylan to Israel, which has major tax disadvantages, or compete an inversion and change its domicile to the Netherlands, which would violate Teva’s bylaws.
Maris also believes the acquisition wouldn’t be very good strategically. “Mylan bought the Abbott products to focus in on Europe—particularly France—and that’s not an area Teva is interested in,” he wrote.
In addition, Maris thinks that Teva’s debt capacity is too small to pull off a Mylan deal. Mylan has a $22 billion-plus market cap, and with a premium and the company’s debt, the deal would be at about $30 billion. “They’re not going to go to junk status,” Maris said in a note, “just to finance this deal.”
