Teva Pharmaceuticals Industries Ltd. (TEVA); market cap (as of 02/10/2015): $51.05bn.

 

Introduction

Following a wave of consolidation in the healthcare industry, Teva Pharmaceuticals Industries Ltd. and Representaciones e Investigaciones Médicas, S.A. de C.V. (Rimsa) announced on October 1 that they have entered into a definitive agreement under which Teva will acquire Rimsa through a combination of cash on hand and lines of credit, for an aggregate value of $2.3bn. Through this acquisition, Teva will become a leading pharmaceutical company in Mexico, the second largest market in Latin America and one of the top five emerging markets globally. Teva expects the deal to yield substantial synergies and offer a platform for growth in Latin America. The acquisition is not expected to impact Teva’s 2016 earnings, while it is expected to be accretive boosting Teva’s earnings starting from Q1 2017. The transaction was unanimously approved by Teva’s Board of Directors and is expected to close in Q1 2016.

 

About Teva

Headquartered in Israel, Teva is a leading global pharmaceutical company and the world’s largest generic-drug company by sales that delivers high-quality, patient-centric healthcare solutions to millions of patients. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system as well as a strong portfolio of respiratory products.

Established in Jerusalem in 1901, the company initiated as a small wholesale drug business that distributed imported medications. In 1951, Teva began trading on the Tel Aviv Stock Exchange. A period of consolidation in the Israeli pharmaceutical industry in the ‘60s culminated with the 1976 union of Teva’s three major plants to create Israel’s largest drug maker, Teva Pharmaceutical Industries Ltd. In 1987 Teva shares began trading on the NASDAQ, raising $25.5m through the sale of ADRs. At the same time Teva acquired the rights to Copaxone for the treatment of Multiple Sclerosis which was launched in 1996 and still represents Teva’s top-selling product. Since the IPO, Teva grew exponentially via acquisitions, becoming the largest generic pharmaceutical company in North America, and strengthening its worldwide presence. Teva’s net revenues in 2014 amounted to $20.3bn.

 

About Rimsa

Rimsa is a leading independent Pharmaceutical manufacturing and distribution company in Mexico with more than 45 years of experience in developing, producing and selling a wide range of prescription medications. The company differentiates itself as the leading provider of branded specialty drugs, including fixed-dose combinations (“FDC”), which have mainly fueled its growth and allowed the company to reduce overall costs to patients. As of 2014, Rimsa had revenues of $227m with an annual growth rate of 10.6% since 2011.

 

Strategic rationale

Teva’s CEO, Erez Vigodman, is well aware of these major trends. After spending his first year at Teva trying to reduce costs and improve the company’s operating efficiencies, he announced that 2015 would be a year of “strategic development”. Mr. Vigodman has been soughing acquisitions to gain volume and push growth, especially after the expiry of the patent of its top-selling product, Copaxone, opened the way for generic versions of the drug, thus leading to increasing competition. Through this acquisition, Teva is also accelerating its growth strategy in Emerging Markets. The Rimsa deal should allow Teva to strengthen its presence in Latin America and, ultimately, become a leading pharmaceutical company in Mexico, the second-largest healthcare market and one of the top five emerging markets globally. In the background, foreign companies and investors have been increasingly pursuing transactions in Mexico’s pharmaceutical industry, seeking exposure to a market where relatively low rates of healthcare spending are projected to rise.

Teva’s strategy is to build on Rimsa’s reputation, sales force, loyal customer-base and to introduce additional specialty and generic medicines to patients in Mexico and Latin America. Rimsa will provide Teva with an excellent growth platform leveraging on a strong brand, well-established market presence, and an extensive portfolio of differentiated and patent-protected products as well as promising pipelines. Rimsa differentiates itself as a leading provider of “combination drugs” in which a fixed-dose combination of two or more active pharmaceutical ingredients are combined into a single dosage form, therefore increasing adherence and reducing overall costs to patients.

 

Market reaction

The market reacted fairly positively to the announcement, showing interest from investors in the deal. After the deal was announced, Teva’s shares on the NYSE jumped 4.43% from $56.02 on September 30 to $58.50 closing on October 1, in a generally weaker New York market.

 

Financial Advisors

Citi acted as a financial advisor for Teva. Rimsa was advised by Goldman Sachs.
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