Sticking with generics
As usual, Teva made the right move at the right time with the right company.
Shlomo Greenberg 25 Jul 05 17:24
In the end it was IVAX Corp. (AMEX:IVX), an old competitor from Miami. I thought it would be an Indian company or something, and there were even vicious rumors last Thursday that Carl Icahn had sold the controlling interest in Mylan Laboratories (NYSE; XETRA: MYL) to Teva Pharmaceutical Industries Ltd. (Nasdaq:TEVA; TASE:TEVA). But, as long as I’m expounding on the land of unlimited opportunities, as far as I’m concerned, Ivax or Mylan are the same thing, except that it’s currently possible to get Ivax more cheaply than Mylan.
My first summary is that, as usual, Teva has made the right move at the right time, and with the right company. Now we’ll wait and see what the analysts think.
By the way, Icahn had a great round at Mylan. Not only did he come in during a severe crisis, as is his wont, and exit when the company and its share were flourishing, but also sold short a huge quantity of King Pharmaceuticals Inc. (NYSE:KG), which was supposed to be acquired by Mylan. But Icahn persuaded the board of directors to cancel the deal, and King’s share collapsed.
In the 1980s, Teva was in a close race with Ivax and Mylan, with one or the other company in the lead. But in the late 1990s, and unquestionably since the start of the new century, Teva left its two generic rivals far behind, and it wasn’t only Copaxone, its ethical treatment for multiple sclerosis (MS), that gave it its great lead.
What the Teva-Ivax merger means, first and foremost, is that Teva has remained loyal to its core business, generic drugs. After the acquisition of Sicor gave an impression that Teva was moving toward biotechnology, it now seems to me that the acquisition of Sicor, like the acquisition of Ivax, marks an important strategic decision by Teva that “our business is generics.” Why? Because it seems that Teva has concluded that no medical field in the next decade or two will be stronger than generics, and Teva is now prepared for all kinds of generics, pharmaceutical and biopharmaceutical alike.
Teva will naturally not give up jewels like Copaxone, but its business is generics. Period. Teva chairman Eli Hurvitz said this clearly during a presentation, when Teva sold a block of Koor Industries Ltd. (NYSE: KOR; TASE:KOR) shares in 1987. We also know the strategic opinion of Teva CEO Israel Makov that Teva’s step is correct business-wise, and all else is unimportant.
Ivax has $1.9 billion in sales. It is profitable, and has a market cap of $6 billion. Teva is due to pay $26 per share for Ivax, plus $1 billion in debts, for a total of $7.8 billion. Teva, which has a market cap of almost $20 billion and sales of over $5 billion, is also profitable. “The New York Times” reports that Teva will pay half in cash and half in shares for Ivax.
At this time, there is no point making predictions about the future, Teva’s debts, and so on. These matters will fill the newspapers and Internet in the days ahead, and every one of us will have to decide which analyst he or she will follow. But the bottom line here is much easier to analyze than if Teva had acquired a large Indian or Chinese company. Teva is buying a “baby Teva” with a p/e ratio of 18 for 2006, which in my opinion is a good price in terms of marketing and savings. Teva knows Ivax. In my opinion the savings in R&D and general expenses will be quite substantial. These are two very aggressive companies that both compete and cooperate in sales worldwide, and can now do so together. It will be interesting to know what goals Ivax chairman and CEO Phillip Frost, a serious and powerful man who once ran King Pharmaceuticals, has set for himself.
There are two jewels Teva gains from the acquisition of Ivax, in addition to all the other good things. One is 2004 Nobel Prize for Chemistry Laureate Prof. Avram Hershko, a former Ivax director who is still affiliated with the company’s biotechnology research. The second is that Ivax is currently considered a serious competitor of Teva in the development of an oral MS therapy. Teva has been working on this sort of pill for a long time, and the two companies might collaborate.
So, is it worth buying Teva shares? You all know my opinion: it’s always worth buying Teva when its share is down.
Published by Globes [online], Israel business news - www.globes.co.il - on July 25, 2005
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