August 21, 2009 / 1:19 PM / 10 years ago

DEALTALK-Does Teva have Shire in its cross-hairs?

* Teva looking beyond generic drugs to drive business

* Shire would boost branded sales, cut reliance on Copaxone

* $10 bln-plus deal would be Teva record, might be too big

By Ben Hirschler and Steven Scheer

LONDON/JERUSALEM, Aug 21 (Reuters) - Teva Pharmaceutical Industries (TEVA.TA), the world’s biggest generic drugmaker, could turn the tables on its Big Pharma rivals by snapping up Shire SHP.L, a maker of branded specialty medicines.

That, at least, is the buzz among investors casting around for the next $10 billion-plus transaction in a sector that has seen a wave of deal-making this year.

Buying Shire would make sense for the acquisitive Israeli group, some analysts say, since Teva is looking to shore up its relatively small, yet important, branded business as its multiple sclerosis drug Copaxone faces the threat of generic competition.

Shire, which operates out of Britain and the United States but is based in Dublin for tax purposes, could fit the bill.

Healthcare bankers familiar with the two companies said Shire was an attractive target for Teva, and potentially others, given its line-up of marketed and experimental drugs in specialty medicine, but a deal did not appear to be imminent.

A bid for Shire, which would have to be pitched at well over $10 billion, would be a record size for Teva and might be too much of a stretch, one added.

Officials at Teva and Shire declined to comment.

“It’s aggressive but Teva has bought large companies before. They have showed a lot of skill in digesting large companies,” said Gilad Alper, an analyst at the Excellence Nessuah brokerage in Tel Aviv.

“Shire would be more complicated since it’s branded and not generics and marketing would be different — but it would not be overly ambitious.”

Teva, which bought Barr for $7.5 billion in 2008, certainly has a track record of doing major acquisitions and said last month it was ready to look outside of generics for future deals.

“We believe that the same type of capabilities that we have developed in the generic markets, we can also apply to specialty,” Teva’s North American CEO Bill Marth told analysts during the company’s second-quarter conference call.

“Now, this doesn’t mean that Teva is going to necessarily run out tomorrow and chase down specialty companies ... but ... as you think of companies moving forward, you should not limit your thinking to just generic companies.”

BLURRED DIVISION

A Teva-Shire deal would mark a further blurring of the dividing line between branded and cheaper generic medicines at a time when big drugmakers like Pfizer (PFE.N) and GlaxoSmithKline (GSK.L) are increasingly moving into the generic space. Citigroup analyst John Boris is convinced acquiring Shire would make strategic and financial sense for Teva.

In a note last week he estimated a deal closing by end-2009 would be modestly dilutive in 2010 and accretive to earnings thereafter, assuming Teva paid the same 40 percent premium as for Barr and offered 40 percent equity and 60 percent cash.

With Shire’s market value at $9.3 billion that would imply a price of $13 billion. But Excellence’s Alper thinks the premium might not be so large, given a recent rally in Shire shares.

Teva’s market capitalisation is $46 billion.

Bringing Shire into the fold would make Teva a major player in hyperactivity drugs — it already sells a generic version of Shire’s Adderall XR treatment — and add a range of drugs for rare diseases that Shire picked up by buying TKT four years ago.

Shire is relatively rare beast, since it is one of the few mid-sized drugmakers in Europe that is available to be bought and not held by a family trust.

As a result, it is often in the rumour mill. Previous suggested buyers have included British rivals AstraZeneca (AZN.L) and Glaxo.

But Shire also has the firepower to make a chunky acquisition itself and Ian Wainwright, an analyst at Canaccord Adams, thinks a bid for the likes of Swiss biotech group Actelion ATLN.VX could be a potential defensive move.

Additional reporting by Quentin Webb; editing by John Stonestreet

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