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Drug companies to merge

Teva's acquisition of Ivax Corp. would create the world's largest generic drug maker

By Theresa Agovino

Associated Press

NEW YORK -- In a deal that will create the world's largest generic drug company, Teva Pharmaceutical Industries Ltd. said Monday it is acquiring rival Ivax Corp. for about $7.4 billion in cash and stock. Ivax shares climbed 10 percent.

The acquisition comes as the generic drug industry has been benefiting from a drive to lower health care costs and a spate of patent expirations on major medicines. But competition among generic makers is intensifying and the deal may trigger further consolidation

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"We are very excited about the deal because it directly expands our leadership position in the worldwide generics business," said George Barrett, president and CEO of Teva North America Inc. "Health care systems all over the globe are struggling with health care costs."

Analysts largely applauded the move, saying the deal made strategic sense as it expanded Teva's operations into Latin America and Eastern Europe while giving it a portfolio of respiratory products.

Still, Standard &; Poor's said it was reviewing Teva's credit rating to see if it should be lowered because of the amount of debt it will use to finance the deal.

"Teva is financing half the deal with debt, and this is a very big deal for them," said Arthur Wong, an S&P; analyst.

Teva currently has $2.23 billion in debt while Ivax holds $1.1 billion.

Barrett said he was confident there would be no change in Teva's BBB credit rating, and that the company's debt to capitalization ratio won't exceed the 50 percent threshold.

The acquisition was likely to pressure others in the generic industry because the two biggest players, Israel's Teva and Novartis AG of Switzerland, are global behemoths that dwarf their competitors in what is expected to become an increasingly difficult business, analysts agreed.

After the deal closes, Teva will generate sales of about $7 billion a year, the company said. Novartis's generic drug division acquired two generic companies this year, and its pro forma revenues for 2004 totaled $5.1 billion.

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"Smaller players are going to have to catch up to them, " said Richard Watson, an analyst with William Blair &; Co. in Chicago.

By contrast, rival generic drug maker Mylan Laboratories Inc. reported revenues of $1.3 billion for fiscal 2005 which ended March 31 while Watson Pharmaceuticals Inc. reported $1.64 billion in revenue in 2004.

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