Early in November Israeli drug maker Teva Pharmaceuticals (Nasdaq:
TEVA) announced the acquisition of generic drug maker Sicor (Nasdaq:
SCRI). The deal values Sicor at $3.4 billion. We questioned the
investment broker firm of Merrill Lynch and it responded that it
continues to maintain its positive view of Sicor and projects a 12%
growth in profits for 2004. Teva is an outgrowth of Israel's rapid
development. Until the early 1980s the country's pharmaceutical
industry was a hodgepodge of small companies that had been founded in
response to Israel's inability to obtain all of her pharmaceutical
needs from overseas. Eli Hurvitz, a former kibbutznik (farmer) assumed
its leadership and set a course for Teva to become a generic drug
company, Jointly with the American Grace Co. they broke new ground
and moved into the generic drug field. Today Teva, is the largest
generic company in the world. Moreover, Hurvitz wanted Teva to make
a "blockbuster" drug. When the opportunity presented itself Hurvitz
gambled and licensed Weizmann Institutes fundamental scientific know.
He gambled heavily on acquiring the know-how, built a $30 million
plant, well ahead of being sure that the pharmaceutical trade-named
Copaxone, could be produced or would reduce the relapse rate in
patients with relapsing-remitting multiple sclerosis and also
encourage the release of a factor that helps protect the brain from
axonal loss. Teva's Copaxone has become Israel's first home grown
"blockbuster". The company recently said that worldwide sales of the
branded therapy used in the treatment of multiple sclerosis climbed
25 percent in the latest quarter, to $180 million. Teva's growth is
far from over. Teva will invest $3 million in Gamida-Cell, which has
developed a technology to treat blood diseases such as leukemia and
lymphoma. Gamida-Cell's technology increases stem cell reproduction
while limiting mutations. It also has invested to form Bioline
Therapeutics, a biopharmaceutical drug development company. A third
investment, in ProNeuron makes it clear that Teva aims to become an
important player in the biotechnology field.
Teva Acquires Sicor for $3.4b
Teva CEO Israel Makov said the Sicor purchase contributes major
growth engines to the Israeli company.
Sicor is one of the strongest companies in the U.S. hospital sector,
giving Teva an immediate presence in a market it has eyed for some
time.
Sicor will constitute a base for Teva's global operations in
injectables via its Irvine, California and Mexico manufacturing
sites. Teva operates in this market via Pharmachemie Netherlands and
a Hungarian subsidiary. Low production costs in Mexico will allow
Teva to expand its product line in Europe (where it has suffered from
low profit margins) and increase its product line in the U.S.(where
profit margins are bigger).
Makov puts the European injectables market at 300 million euro
annually, projecting it will grow to 700 million euro by 2006.
Another reason for the Sicor acquisition is the company's Mexican
operation. Teva entered that market recently, establishing a
subsidiary to distribute its multiple sclerosis drug there and later
to distribute Teva generics in Mexico and Latin America.
Sicor is already involved in that market and 15 percent of sales
originate there; the acquisition becomes a shortcut for Teva's
Mexican penetration process.
Another growth engine would be Sicor's active pharmaceutical
ingredient (API) manufacturing operations. Sicor makes 25 ingredients
for medications it markets and 36 APIs for other drugs. Sicor's
operations in this area are complementary to Teva's as they include
the manufacture of cancer drugs and anti-inflammatory steroids based
on synthetic derivatives of natural hormones.
Makov said buying the U.S. company will strengthen Teva's leading
status in the API market. Makov noted Teva's interest in Sicor's
biogenerics, generic versions of drugs originating from live cells an
not through chemical synthesis
Teva's Q3 Profit Jumps 63%
Teva said third-quarter revenue climbed 29 percent to $812.6 million,
boosted by sales of the company's generic version of Augmentin, the
antibiotic produced originally by GlaxoSmithKline.
The Israeli high-tech sector and its entrepreneurs have often been
criticized for their apparent inability to nurture global size firms.
Why can't Israel produce a Nokia? Why do the country's entrepreneurs
sell out their companies long before their potential is reached? The
most popular explanation was that Israelis were inexperienced in
international marketing. They missed this experience and could not
create multi-national concerns. Perhaps closer to the truth was an
inbred sense of impatience. The same impatience that makes great
technologists play against forming business empires. Nevertheless,
CheckPoint and Comverse did become multinationals. Gil Shwed, the
founder of CheckPoint , continued to manage the company from Israel.
He had accurately anticipated the growth of the internet and that
computer security would become a major issue.
Israeli drug maker Teva Pharmaceuticals (Nasdaq: TEVA) announced the
acquisition of generic drug maker Sicor (Nasdaq: SCRI). The deal,
which included $16.50 in cash plus 0.1906 Teva shares, values Sicor
at $3.4 billion, or $27.50 per share.
With the explosion of generic drugs, Sicor's generic injectable drug
business will complement Teva's generic oral dose franchise nicely.
The acquisition strengthens Teva's position, most importantly in
North America, where the company generated 63% of its sales in the
third quarter.
SICOR, at the time of the announcement had a market capitalization
$3.2 b. Its shares were up 70% year to date. The shares are rated as
a buy at Merrill Lynch. The acquisition originated in Teva's desire
to begin production of generics of biotech medicines. Back in March,
Jeff Fischer of the Motley Fool penned a three-part series on the
potential of generic drug companies. Following a discussion of Mylan
Labs (NYSE: MYL), he highlighted three companies to consider,
including Sicor. At the time, he felt that Sicor was attractive at
about 20 times free cash flow, or $17.30 per share.
Teva earned $156.6 million, or 53 cents per share, up from $96.3
million, or 36 cents per share, in the 2002 third quarter. Teva had
been expected to earn 49 cents per share, according to the average
estimate of analysts polled by Reuters Research.