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Teva Acquires Cephalon


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Teva Pharmaceutical Industries Ltd. (TEVA - Analyst Report) completed the acquisition of Cephalon, Inc. recently. The acquisition agreement had been initially announced in early May 2011.

Conditions Laid Down by the FTC

The US Federal Trade Commission (FTC) had laid down certain conditions related to the completion of the acquisition. Firstly, Teva was asked to divest two abbreviated new drug applications (ANDAs) from its portfolio – generic Actiq (fentanyl citrate lozenges – cancer pain) and generic Amrix (cyclobenzaprine ER capsules – muscle relaxant). Both Actiq and Amrix are a part of Cephalon’s product portfolio. Teva will have to sell all of its rights and assets related to generic Actiq and generic Amrix to Par Pharmaceuticals, Inc. within 10 days of the acquisition.

The second condition relates to generic versions of Cephalon’s Provigil (sleep disorder). Teva will have to enter into a supply agreement with Par Pharma under which it will provide Par Pharma with generic Provigil for a year. This will allow Par Pharma to compete with a generic Provigil product during the 180-day exclusivity period. Par Pharma also has the option of extending the supply agreement by a year.

Acquisition In-Line with Teva’s Strategy

The $6.8 billion deal is in line with Teva’s long-term strategy of expanding and strengthening its branded and specialty pharma business. The combined company will have a presence in more than 60 countries and will have a branded product portfolio consisting of more than 20 products.

Cephalon also has a presence in the generics market following its April 2010 acquisition of Mepha AG, which specializes in the marketing of branded and non-branded generics and specialty products in more than 50 countries. Mepha has a presence mainly in Europe, the Middle East, Africa, South and Central America and Asia.

Teva’s pipeline will also receive a significant boost - Cephalon has several candidates in its pipeline including Lupuzor (systemic lupus erythematosus), and Cinquil (eosinophilic asthma).

Neutral on Teva

Teva expects the deal to be immediately accretive to its non-GAAP earnings per share and accretive to GAAP earnings within the fourth quarter of closing. We currently have a Neutral recommendation on Teva, which carries a Zacks #3 Rank (short-term Hold rating).

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