"We submitted the documents to the Federal Trade Commission (FTC) at the end of May. It takes the FTC an average of 2-4 weeks from the time it gets the documents to final approval, but this is not an average deal. Nevertheless, it appears that the process is going well," Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) Global Generic Medicines CEO and president Siggi Olafsson said yesterday, commenting on obtaining regulatory approval to complete the giant deal in which Teva is acquiring Actavis, Allergan's generic division. The $40.5 billion deal was announced in July 2015. Teva previously said it expected to complete the deal in June (this month), following a series of delays. While attending a Goldman Sachs conference, Olafsson was asked by analyst Jami Rubin what actually made Teva so confident that it would be able to complete the deal, and would not eventually get a negative answer from the FTC. "The FTC has been working closely with us for 10 months already, and after 10 months, we have no indication that we'll get a refusal. From everything we've seen, and from all the FTC's actions to date, we haven't seen anything to make us believe that the deal won't eventually be approved," Olafsson answered. He said that the merged company's share of the US generic market would be 19% or slightly less. "That's not an unreasonable share," he declared. As part of the process of completing the deal and obtaining regulatory approval, Teva will sell certain product lines in order to avoid damaging competition. Olafsson said in this context that 4-5 companies would compete for each asset.
In other words, Teva will be able to obtain a good price in these sell-offs. The acquisition of Actavis is the largest ever for Teva, but since the deal was announced, the multiples and values of listed generic companies have declined, raising questions in the market about the pricing for the deal, which now appears too high, given concern about erosion of generic drug prices. "There is a belief in the market that Teva is paying too much. In view of the generic pricing trends and Allergan's poor quarter, what can you say about these concerns?", an analyst asked. Olafsson answered that the strategic value of the deal remained what it was on the day it was announced in July 2015: "I think that investors are slightly worried that they saw $1.3 billion in revenue at Actavis in the first quarter (compared with $1.4-1.5 billion in the two preceding quarters, S.H.-V.), but this can be explained by the fluctuations involved in launching exclusive drugs." Olafsson added that Actavis's pipeline was "excellent."
Referring to the fall in generic prices, Olafsson explained, "The environment hasn't changed. When we signed the deal in July, we talked about a 4% drop in generic prices in the US, and we're using the same figure now. What have changed are the multiples of the generic companies, due among other things to other companies in the market - Valeant and Endo - and things that Perrigo Company (NYSE:PRGO; TASE:PRGO) and Mallinckrodt said abut the generic business, which affected the entire industry." Olafsson added in this context that the major generic companies were talking about the same trends in the sector. "I think that the challenge is to medium-sized companies whose portfolio isn't sufficiently large and distinguishable - companies that really benefited in the past from prices for a small number of molecules - those days are gone." In conclusion, Olafsson was asked when Teva would finaly be able to launch a generic version of the most important ethical drug of its competitor, Mylan N.V. (Nasdaq: MYL; TASE: MYL) - EpiPen - for treatment of severe allergies.
"That’s the $1.1 billion question for Mylan," said Olafsson, chuckling. In response, the analyst reminded him that Teva is a large shareholder in Mylan (after buying shares on the open market last year in its abandoned attempt at a hostile takeover). "There is still a lot of work to do," Olafsson said, and predicted that it would happen in late 2017, or possibly in early 2018.
Published by Globes [online], Israel business news - www.globes-online.com - on June 9, 2016
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