Teva and Amarin Aren't a Good Match

Small biotech Amarin (Nasdaq: AMRN  ) , the maker of omega-3 drug Vascepa to treat cardiovascular disease, has been involved in a number of buyout-related discussions recently. While several big pharma players have been speculated to have interest in the biotech, one generic drugmaking king stood out as odd: Teva Pharmaceuticals (NYSE: TEVA  ) . While Teva has plenty going for it right now and Amarin seems destined for an investor-friendly buyout, these two aren't a made match.

Synergy? What synergy?
Teva's CEO, Jeremy Levin, said earlier in November that the company was focused more on promoting branded generics than seeking out acquisitions -- and then this news broke. Given Teva's portfolio of branded drugs, however -- which sold more than generics last quarter despite Teva's well-known lead in the generic market -- there's little to suggest that the company's ready for Amarin.

Teva doesn't operate much in Amarin's cardiovascular market. The company offers branded and generic products for respiratory, oncology, central nervous system, and other treatments, but little at all in the cardio arena. While optimistic investors could point out the opening for Teva to enter, there's too much risk involved in such a bold measure for a company fresh off November's management change and looking to reshape its future.

With no overlapping infrastructure in the cardiovascular space, Teva would have to engage in too much restructuring to make the Amarin purchase fit. Based on Levin's conservative view and already-ongoing "reshaping," that doesn't seem up the company's alley; rather, Teva should focus more on expanding in the markets it already knows best or pulling in an acquisition in a related market to already-established product lines.

Teva's leadership certainly sounds conservative as well. During the company's most recent quarterly conference call, Levin said, "...we will certainly look at small assets. I'm not anticipating any major -- we're not anticipating leveraging up to secure large acquisitions at all." Given how the company's performing now, the last thing it needs is a risky purchase.

Pipeline promise outweighs patent problems
Teva reported a mixed third quarter, but the company's shift toward branded drugs is looking strong. Sales of branded medicines picked up 38% year-over-year for the quarter, with the largest branded division of central-nervous-system drugs gaining 37%. It's questionable how long Teva can keep that up, especially considering that its blockbuster MS drug, Copaxone, will soon have tough competition from Sanofi (NYSE: SNY  ) and Biogen's (Nasdaq: BIIB  ) promising MS products. Given that Copaxone sold more than $1 billion last quarter, that's a cash cow the company can't afford to lose -- and the drug's loss of patent exclusivity in 2014 could have the company worried enough to ponder acquiring Amarin.

Nonetheless, the performance doesn't necessitate a big acquisition like Amarin's $1.8 billion market cap would warrant. Furthermore, the company's pipeline isn't too shabby, with more than a dozen drugs and treatments in or beyond phase 3 trials. Rather than throw around money on a purchase, Teva should devote dollars to its own in-house development. If the company's serious about expanding its branded portfolio, it has plenty of candidates in its own backyard.

While Teva's financial results haven't been eye-popping, its branded portfolio's performance has been good enough recently that an acquisition isn't immediately necessary. If the company still wants a purchase -- as Levin did make his name at Brystol-Myers Squibb (NYSE: BMY  ) with acquisitions -- it should look for something smaller with less risk.

Not this time
Although Amarin looks to be on the right track, it's not the right company for Teva. With little experience in the cardiovascular game, Teva would have too much work successfully incorporating Amarin while simultaneously undergoing its own transition toward focusing more on branded products. So far, that transition's gone well, even with Copaxone's patent expiration looming in 2014. If the company's pipeline pays off, Teva will be in a good position for the future, and if Levin decides acquisitions are the right move to make, he'd be best served ringing up some low-risk bets already in the company's areas of expertise. Amarin may have a bright future, and it may make a big pharma company very happy one day -- but despite the upside, Teva should stay away.

Amarin might not be the right pick for Teva, but is it the right stock for you? The biotech space can make or break investors overnight, and while Amarin might not disappear into thin air, the success of its new triglyceride-lowering drug is key to the company's future success or failure. The company has huge potential, but don't invest a dollar before reading everything you need to know about Amarin. You can start now with top Fool.com analyst Max Macaluso's premium research report. Click here now to keep reading.


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  • Report this Comment On November 28, 2012, at 10:51 AM, Dawgpac wrote:

    Calcalist might have gotten the rumor slightly twisted. More likely Teva was making a play for Pronova and lost a bidding war to BASF. Pronova is a nice play for any company looking to get in on the massive amounts of pure EPA that will be needed as Amarin moves into the ANCHOR indication.

  • Report this Comment On November 29, 2012, at 12:21 AM, idahithat wrote:

    Why write this article without acknowledging that Teva (with Par Pharma) a few months ago lost a bid by court ruling to produce a Lovaza generic for the US market ? Teva has some rights to EU marketing of same.

    Seems TEVA has quite an interest in the omega3 & derivative space.

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