The New Generic Giant, Teva Acquires Barr
Posted on: July 22, 2008 - Email Article - Printable Version
The health care sector is seeing a flurry of activity lately as industry players are looking for strategic acquisitions to help keep steady inflows of cash as approval rates drop and more drugs spend a longer time in the pipeline. The latest news comes from the generic group.
A Generic Giant
It was announced last week that Israeli Teva Pharmaceuticals [TEVA: 59.93, -0.41 (-0.68%)] will acquire American Barr Pharmaceuticals [BRL: 64.81, 0.00 (0.00%)] combining forming the largest player in the generics industry. New Jersey based Barr offers over 100 generic drugs and also has a growing portfolio of female health care products. Barr was offered $7.46 billion by Teva the largest player in generic products who seeks to strengthen its grip in the generic drug space. Teva currently sports a $34 billion market cap, almost 5x the size of Barr who’s shareholders were able to snap up $66.50/share, over a 30% premium based on Barr’s 52 week performance. The deal comes at a time where cash is hard to come buy for most corporations.
The Breakdown
Barr is best known for generic oral contraceptives, generic formulas for Zithromax and a developing portfolio of generic biologic products. Teva, the largest generic entity has a portfolio of over 300 marketable generics in addition to it’s respiratory, specialty, and proprietary products. The deal should close later in the year as Teva adopts a strong portfolio from Barr and is able to extend its offerings to a client base spread around the world. Teva may encounter some difficulties incorporating Barr’s operations, but this should not affect long term performance. Lets take a look at Teva’s forward looking numbers as of closing 7/21 (Data from Reuters Online):
- Closing Price: $44.09
- Estimated 2008 EPS : $2.72
- 5 Year EPS Growth Rate: 26.20
- Forward P/E: 16.21
The Horizon
The acquisition caters to the growing demand for inexpensive generic products. Large pharmas are facing a backlash from penny pinching consumers who are seeking less expensive alternative treatments. Personally, I like generics, I feel in the long run there is a lot of upside in the generic space especially from companies such as Teva who also explores biologics and other proprietary products to compliment their generic segment. Competitors such as Mylan [MYL: 22.10, +0.01 (+0.05%)] and Watson [WPI: 40.64, -0.01 (-0.02%)] could also be shopping around to compete with the new menace on the street. I recommend keeping an eye on the generics despite short term setbacks as baby boomers turn to effective, inexpensive products as they move into retirement.
-Santosh Sankar
Disclaimer: The mutual fund the author is associated with is long MYL
The Following Stocks Were Mentioned In This Article: BRL, MYL, TEVA, WPI
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