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Generic drug giant Teva announces Ivax merger

"Generics is a business where size is a strategic advantage and when these guys go to the wholesalers and retailers, there is value in being a single-source vendor."

Manoj Garg, senior analyst at American Technology Research

Teva Pharmaceutical Industries, the No.1 source of generic drugs in the US, said on Monday that it would acquire the Ivax Corp for about US$7.4 billion in a bid to become the world's largest maker of lower-cost drugs.

The deal will allow the companies to pool their resources at a time when mounting competition is forcing the industry to cut prices and provide a wider range of products.

As copies of drugs formerly under patent, generics have become a commodity in the US and elsewhere, and pharmaceutical companies must operate internationally, analysts said.

For Teva, based in Israel, and Ivax, based in Miami, the merger eliminates a large competitor and creates a supply chain that spans 50 countries. Last year, their combined revenues totaled about US$6.6 billion.

George Barrett, president and chief executive of Teva North America, described the deal as "a statement about our commitment to the industry."

As countries cope with rising health care costs, he said, they will increasingly turn to generic drugs to contain those costs.

"We want to be in the best possible position to satisfy that market," he said.

Under the terms of the deal, whose negotiations were reported on Monday in the New York Times, Ivax shareholders will receive either eight-tenths of a US depositary receipt representing Teva shares or US$26 in cash, a 14 percent premium over the stock's closing price on Friday of US$22.88. Ivax shareholders will then own about 15 percent of the combined company.

Manoj Garg, senior analyst at American Technology Research in Greenwich, Connecticut, said the industry's falling prices made growth difficult but vital.

"Generics is a business where size is a strategic advantage," he said, "and when these guys go to the wholesalers and retail pharmacies, there is value in being a single-source vendor."

A few other companies have taken the same approach. Novartis, the owner of Sandoz, which is currently the largest generic drug maker in the world, said in February that it would acquire Eon Labs for US$8.4 billion in cash. Mylan Laboratories, in Pittsburgh, tried to expand into brand-name drugs last year by buying King Pharmaceuticals for US$4 billion in stock, but it dropped the purchase after King restated some of its financial results.

Teva said that with its acquisition, its sales would exceed those of Sandoz.

Albert Rauch, a pharmaceutical analyst at AG Edwards in Chicago, said he expected more consolidation as profit margins continued to shrink. He pointed to Novartis as a possible acquirer and to Barr Laboratories, Watson Pharmaceuticals and Mylan Laboratories as both potential buyers and targets.
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