Mergers and acquisitions in the pharmaceuticals industry continue to be a hot topic, and the market continues to expect Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) to return to being an active player in this arena. On Thursday, when Teva released its fourth quarter financials, Pfizer announced the $17 billion acquisition of Hospira (and it was recently reported that Pfizer had expressed interest in buying Teva).
"You were very clear about your acquisition strategy, but there have been no deals. Is that a matter of price, or a lack of opportunities?," one analyst asked in Teva's post results conference call.
Teva CEO Erez Vigodman responsed, "Our focus in 2014 was on putting our house in order. Now, in 2015, we are setting out again in the direction of non-organic moves." Vigodman did not rule out any possibilities, and even said that although Teva preferred to avoid hostile takeovers, this too was a possibility. "We'll do whatever is necessary to achieve a deal that will enable us to create value for the shareholders," Vigodman said.
In response to another question, Teva CFO Eyal Desheh also commented on the subject, and said that Teva had a balance sheet, a share price, and the resources to enable it to make deals. In addition, he said that there was room to take on more debt.
At the end of 2014, Teva had $2.6 billion cash. It posted a non-GAAP profit of $4.35 billion on revenue of $20.3 billion.
"For M&A, we are encouraged by continued commentary that business development will play a larger role in 2015," Goldman Sachs analyst Jami Rubin wrote at the end of last week, but added, "However, Teva has long sat still while other generic/specialty peers have executed M&A, strategically lowered tax rates, and grown at a faster rate. With current debt-to-EBITDA of 1.7x, Teva has financial firepower which it could use in 2015 to catch up and drive inorganic growth." Rubin maintains a "Neutral" recommendation.
JP Morgan analyst Chris Schott also believes that Teva has the wherewithal to make acquisitions. "Teva has significant financial flexibility, and management has been actively assessing M&A options. We continued to see a high level of activity across the sector, and relative to Teva's interests the company remains focused on high-barrier generic businesses/emerging markets, as well as specialty brand assets/pipeline, in its core therapeutic categories (CNS & Pain, Respiratory). We believe that Teva is looking at assets of all sizes, and will not rule out transformational M&A if the opportunity presents itself," Schott writes. He too maintains "neutral" recommendation.
Liav Abraham of Citi thinks that the market underestimates the opportunities in Teva's product pipeline, but that earnings per share will remain flat until the end of 2017 because of "top-line pressures". "With investor concern surrounding the potential for a Copaxone 40mg generic likely to intensify heading into the loss of exclusivity of the compound in 2017, we believe that there is sufficient urgency for execution by Teva on M&A over the near term. Management commentary suggests that M&A is high on the agenda for 2015, with multiple options being evaluated in both the branded and complex generics spaces." Citi rates Teva "Buy".
Published by Globes [online], Israel business news - www.globes-online.com - on February 9, 2015
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