After “The New York Times” reported this morning that Israeli pharmaceutical giant Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) was about to acquire US competitor IVAX Corp. (AMEX: IVX) for $7.5 billion, analysts covering the share responded to the report by trying to analyze the significance of the report for the company, and its effect on the share.
IBI analyst Elah Alkalay said this morning that the acquisition was a surprise. "It is unexpected both because of its size and because the market believed IVAX would continue making acquisitions and would not itself be bought. There are many synergies between Teva and IVAX, and the move looks like a positive one."
According to Alkalay, IVAX has several big-selling drugs for which it was the first to file for FDA approval. "It's hard to know how much duplication there is between IVAX's generic pipeline and Teva's in those areas that are not public knowledge, but one must rely on Teva and believe that the overlap is not great," she says. Alkalay adds that in the area of unique drugs, IVAX has some interesting things to offer, such as in asthma treatment, and has collaboration arrangements with Indian companies that Teva could leverage. IVAX also has interesting activity in emerging markets such as Latin America, China, and Russia, where Teva has yet to set up activity.
”The price is expensive, but the acquisition is essential,” says Leader DS analyst Uri Hershkovitz. “The security jumped recently, because somebody knew about the acquisition, and the name IVAX has been bandied about in Israel, too, in recent weeks. The size of this acquisition is very difficult for Teva. Putting aside the price for the moment, IVAX’s inhaler business could take off in 2007. It’s a niche field, which is typical of Teva’s recent acquisitions.” Hershkovitz predicts that Teva will raise $2.5 billion for the acquisition.
Clal Finance Batucha Investment Management analyst Yisca Erez claims that the acquisition is good for Teva, because it reflects a sales multiple of four, considered good and acceptable in the generic industry, and because the two companies are synergetic in products and drug approvals. Erez says that another reason for optimism is weaker competition for Teva, particularly at a time of such strong competition.
Nevertheless, Erez notes that IVAX’s 14% profit margin is substantially lower than Teva’s 25.5%, which could detract from Teva’s profitability in the short term.
Erez says that, in the end, the fact that Teva is regaining its leading position in the generic market is no less important than any other consideration.
Published by Globes [online], Israel business news - www.globes.co.il - on July 25, 2005