What would a Teva buyout mean for its R&D operation?

Teva Pharmaceutical Industries ($TEVA) may not have actually planted a "for sale" sign on its front yard, but now that CEO Jeremy Levin has left the scene of many accidents some top analysts are offering to advertise it as a takeover candidate.

Latest up is Ronny Gal at Bernstein. "It does not have a CEO, cost-cut plans are in place, and value can be readily realized through a merger," he writes, according to the Philadelphia Inquirer. "This is a nice optionality for holders of the stock. Further, we would argue that the longer Teva stock continues to underperform, the more likely it is an offer would materialize."

In Gal's scenario some of the smaller generic drug makers like Mylan ($MYL) or the ever-acquisitive Valeant ($VRX) could step in--perhaps in collaboration--to buy out Teva. But that possibility also raises some big questions about Teva's R&D operation. Teva not only sells the brand name MS drug Copaxone, it also has a pipeline of new drugs it's working on. And the average generics company doesn't do R&D. Valeant has made it well known that it has little appetite for research operations, preferring to buy up marketed therapies.

Teva, which relies heavily on its revenue from Copaxone, experienced a major setback when its next-gen therapy laquinimod failed a Phase III study. Rather than abandon the program, Teva doubled down, looking for better results in a new late-stage study that could pave the way to a badly needed successor for Copaxone. The data has failed to inspire the analysts, particularly as Biogen Idec's ($BIIB) Tecfidera is carving out a big place for itself in the market.

Any buyer is likely to take a hard look at R&D and the prospects of all the experimental therapies in its pipeline. And a generics company could see a separate deal on R&D as a very quick way to reduce costs.

- here's the story from the Philadelphia Inquirer

Special Reports: Top 10 Generics Makers by 2012 Revenue - Teva | Top 10 Drug Patent Losses of 2014 - Copaxone | The 25 Most Influential People in Biopharma - Jeremy Levin

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