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Size Matters: Teva's Buyout of Cephalon Puts It on Course to Eclipse Pfizer

Most Americans have never heard of Teva (TEVA), the Israeli pharmaceutical company that swooped in to buy Cephalon (CEPH), an American company best-known for making the sleep-disorder drug Provigil, over the weekend. But the deal is a game-changer for the U.S. pharmaceutical scene.

Teva could become about the same size as Pfizer (PFE) -- currently the largest drug company by revenues, at $68 billion last year -- by 2015, according to this investor presentation on the Cephalon deal.

Pfizer, of course, is in the process of downsizing itself by selling off "non-core" assets such as its non-prescription brands. Once it's done, the leaner-and-meaner Pfizer would have perhaps $35 billion in revenues. Teva, by contrast, has $16.1 billion in revenues including Cephalon, and plans to hit $31 billion by 2015, according to page 6 of this morning's slideshow. (The deal came after Cephalon rejected a hostile takeover from Valeant.)

Teva made its name selling cheap generic versions of expensive branded drugs made by other companies. But it also has its own "specialty" drug division that competes with the likes of Pfizer. Its biggest drug is Copaxone, for multiple sclerosis, which sold $3.3 billion last year. It's best known drug is Plan B, the little-used emergency contraceptive.

These two charts will shock many Americans in the pharma business, but they give a good idea of Teva's current size. The first shows that before acquiring Cephalon, Teva's $4.5 billion specialty drug business alone was already bigger than those of Shire (SHPGY), Forest Labs (FRX), Allergan (AGN), Warner Chilcott, Valeant (VRX) and Endo (ENDP) -- and bigger than the last two combined (click to enlarge):

With the Cephalon transaction ($81.50/share or $6.8 billion, a 39% premium on the stock before bidding began) it's now almost twice the size of Allergan:

Teva and Pfizer are going in opposite directions. While Pfizer is getting smaller and concentrating solely on expensive, branded prescription products; Teva is growing through acquisitions, cheap generics, and a joint venture to market Procter & Gamble (PG)'s non-prescription over-the-counter brands outside the U.S. Everything that Pfizer intends to do, Teva is not doing. Strategically, Teva is the anti-Pfizer. Most interestingly of all, as Pfizer sheds divisions like its Greenstone generics business, Teva is among the likely candidates to acquire them.


Image by Flickr user jlz, CC.
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