If my suspicions about the generic drug world prove true, size will become more valuable than ever. Whether Barr Labs
Pliva, a Croatia-based generics firm, announced that it had agreed to Barr's $2.2 billion cash takeover offer. Most Americans won't know Pliva well; though it does sell into the U.S. market, much of its business comes from Eastern Europe, as does its pharmaceutical ingredient business. Pliva is similar in size to Barr in terms of sales, but roughly one-third smaller in EBITDA. This deal values the company at less than half of Barr's market cap.
There are ultimately several appealing angles to the deal. It gives Barr better access to Eastern European markets, in addition to another 21 generic drug applications pending at the FDA. The merger will also combine Pliva's technologies in injectable and topical drug delivery with Barr's oral delivery systems, and there's not much overlap between the respective therapeutic categories that the companies target.
Last but certainly not least, the deal expands Barr's access to manufacturing capacity -- and perhaps lower-cost labor and R&D personnel. It may not be an obvious point, but there could be real value in that. Barr will now have better access to compounds and ingredients that are difficult to manufacture, plus a less expensive manufacturing base in Eastern Europe.
Will this strike terror in the hearts of Teva
For more Foolish thoughts on generics:
- Is Novartis the Future of Generics?
- Merck Goes on the Attack
- A More Realistic Bar for Barr Labs
- How to Find the Greatest Growth
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).