CEPH Cephalon (MM)

Teva Pharmaceutical Industries Ltd. (TEVA) recently announced its intention to acquire 57% of the shares of privately-held Japanese company Taiyo Pharmaceutical Industry Co. Ltd. for $460 million. Teva said that it also intends to extend an offer for the remaining shares at Taiyo. The deal, which is scheduled to close in the third quarter, gives Taiyo an enterprise value of $1.3 billion.

Deal to Strengthen Teva’s Presence in Japan

The deal is in-line with Teva’s strategy of becoming a major player in the Japanese generics market. Taiyo, which posted sales of $530 million in 2010, is the third largest generic pharma company in Japan. Taiyo’s portfolio consists of more than 550 generic drugs.

With this deal, Teva expects to deliver sales of $1 billion in Japan ahead of its 2015 target. The Japanese market, which is the second largest pharma market in the world with sales of $96 billion in 2010, has a relatively low rate of generic penetration.

With the Japanese government working on increasing generic penetration from 23% to 30% by 2012, the market represents huge commercial potential for generic players like Teva.

Teva expects the deal to be accretive to GAAP earnings within four quarters after closing. The company will use available funds and bank debt to finance the deal.

Second Deal in May

Teva has been pretty active on the deal-making front over the past few quarters. So far in 2011, the company has struck several deals, including the upcoming acquisition of biopharma company, Cephalon, Inc. (CEPH).

The Cephalon deal, which is scheduled to close in the third quarter of 2011, will not only strengthen Teva’s pipeline, it should also help the company achieve its goal of increasing its branded revenues from $4.6 billion in 2010 to more than $9 billion in 2015.

We currently have a Neutral recommendation on Teva, which carries a Zacks #3 Rank (short-term Hold rating).

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