CEPH Cephalon (MM)

Teva Pharmaceutical Industries Ltd. (TEVA) is a step closer to acquiring Cephalon, Inc. (CEPH) with the US Federal Trade Commission (FTC) accepting the proposed consent order in connection with the acquisition. The FTC has also granted early termination of the Hart Scott Rodino waiting period.

Conditions Laid Down by the FTC

However, the FTC has laid down certain conditions related to the completion of the acquisition. Firstly, Teva will have 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 its rights and assets related to generic Actiq and generic Amrix to Par Pharmaceuticals, Inc. (PRX) 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.

Deal Could Close by Mid-October

Teva has agreed to these conditions and is expecting to close the deal on October 14, 2011, provided it gains EU approval. The $6.8 billion deal, which was announced in early May 2011, is in line with Teva’s long-term strategy of expanding and strengthening its branded and specialty pharma business. Once the acquisition goes through, the combined company’s branded product portfolio will consist 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). We currently have a Neutral recommendation on Teva, which carries a Zacks #3 Rank (short-term Hold rating).

 
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