April 21, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
Israeli company Teva Pharmaceutical Industries Limited has finally made it official and will bid for generic drugmaker Mylan Inc. at an unsolicited price of around $40.1 billion, the company said Tuesday, 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.”
Rumors that Teva and Mylan are finally ready to merge have been roiling the market for months, but gained new urgency yesterday after people familiar with the matter told Bloomberg News they expect a formal bid from Teva for Mylan soon.
“Teva hasn’t made a formal approach yet, the people said, though Mylan is aware of the Israeli company’s interest,” said Bloomberg Monday. “Teva is evaluating the purchase internally and has also approached advisers about the potential bid and financing, the people said, asking not to be identified discussing private information.”
Earlier this month Mylan made an unsolicited $28.9 billion bid for Perrigo Co., a move which Wall Street has taken as a catalyst for Teva to pounce before Mylan becomes a larger, and much more expensive, target. Mylan has said, however, that it remains committed to its deal with Perrigo, refuting a Teva deal soundly in a statement on Friday.
“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,” Robert J. Coury, Mylan’s executive chairman, said.
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 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 (ABT)’s 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.”
