The increase in merger deals involving generic drug companies has continued apace after Israel's Teva Pharmaceuticals announced it was buying its American rival Barr, the fourth-biggest group in the sector, for $7.5bn (£3.75bn).
The friendly deal will combine the generalist group Teva with Barr, which specialises in female healthcare, giving the merged company more than 500 products and sales worth $11.9bn. Teva will pay $66.50 for each share, which represents a 32 per cent premium to Barr's average share price over the past two years and 42 per cent above where the stock closed on Wednesday. The acquisition price also includes Barr's debt.
Teva hopes the deal will cement its place as one of the leading off-patent drugs producers in the US, as well as establishing its position in Europe. The combined group has as many as 70 patent challenges in the pipeline. "The combination of our two companies provides an outstanding opportunity strategically and economically: it will enhance our market share and leadership position in the US and key global markets," said Teva's chief executive Shlomo Yanai.
Andreas Theisen, an analyst at WestLB in Germany, said the deal comes as something of a surprise. "We would not have thought that Teva was interested in the US operation where it has undoubtedly been attracted to Barr's very specialised oral contraceptive business. The price looks pretty cheap at a multiple of just 12.7 times Ebitda, most deals in the past three or four years have come at around 15 to 16 times. This certainly leaves the door open for others to bid for Barr." According to Mr Theisen, the agreement includes a $200m break clause, which is payable to Teva if Barr withdraws from the merger.
Generic drugs companies operate by producing treatments that were originally developed by the branded sector, but where patents have lapsed. Increasingly, generics groups are challenging patents in the courts. Earlier this month, Teva was dealt as blow when a New Jersey district judge awarded Astra-Zeneca a summary judgment in a case where Teva had sought to set aside the patent protecting the schizophrenia drug Seroquel. Teva conceded it had breached AstraZeneca's copyright, but claimed the branded group had acted inequitably.
Yesterday's deal is the latest in a line of merger deals involving the generic drugs industry. Last month, Japan's third-biggest pharmaceuticals group, Daiichi Sankyo, bought a 35 per cent share in India's largest generic drugs maker, Ranbaxy, for $4.6bn. One analyst in London said that the latest wave of deals was nothing new. "We have been here before and historically these deals do not work very well," said the analyst. "The only merger that has succeeded in recent times was Novartis' buyout of Sandoz."