Teva Advances Generics Consolidation with Ivax Purchase

August 1, 2005

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-08-02-2005, Volume 0, Issue 0

Teva's recent purchase of Ivax has analysts wondering where the push for bigger and more global generic manufacturing companies will take the industry.

Continuing its efforts to stay on top of the generic pharmaceutical industry, Teva Pharmaceutical Industries Ltd. purchased Ivax Corp. for $7.4 billion, July 25. According to Chief Executive Officer, Israel Makov, the acquisition will allow Teva to lead the industry “on a different scale,” both therapeutically and economically.

    Experts agree that this is a significant example of ongoing consolidation in the generics industry. By manufacturing the largest number of products, Teva is “going to be way up on top,” said Edward Thwaite, president of E.W.   Thwaite Associates Inc., a generics consulting firm.

    Including drugs manufactured by Ivax, Teva will now have an offering of more than 300 products, according to Makov. These are mostly generics but also include some branded drugs. The company’s pipeline will also be enlarged by the deal, he said during a conference call announcing the acquisition.

    Peter Young, president of specialist investment banking firm Young & Partners, said that that for some generics companies, consolidation can be beneficial if it leads to reduction in costs due to sales force and infrastructure and enhance the fullness of a company’s product portfolio.

    These were all factors Teva executives emphasized when announcing the acquisition. Makov also cited expansion of research and development by eliminating duplication and using money more efficiently as a benefit of the acquisition.

    But Young disagreed with the idea that consolidation has benefits for the company’s research and development or regulatory sectors.

    Young also asserted that remaining small could also be advantageous for some generic manufacturers.

    “Much of generic pharma is regional,” he said, referring especially to companies’ sales and regulatory functions. “So the benefit of being global might not be as strong as in other industries.”

    What’s more, Young said, for companies that are very strong in one therapeutic niche, consolidation might not bring any benefits. As and example, he compared a luxury car company, such as Porsche, with a lot of revenue from very strong niche market, with a mainstream car company, Ford, which is being weakened by global competitors. Porsche would have nothing to gain by acquiring Ford, he indicated.

    Young believes that consolidation in the generics industry would have only a modest impact on pricing for customers.

    “You’d have to have a lot of people merging before the level of competition would go down,” he said.

    But Thwaite disagreed. A large company with a diverse product portfolio and pipeline will have more pull with customers, including wholesalers, warehousing chains, mail order companies and managed care companies, he said.

    “Every customer has got to deal with them, whether they want to or not,” Thwaite said.

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