Teva buying Auspex for $3.2 billion

Teva Pharmaceutical Industries Ltd. is trying to transform its generic and branded drug businesses, and it took another step in the latter category Monday by agreeing to pay $3.2 billion in cash for Auspex Pharmaceuticals Inc.

Auspex, headquartered in La Jolla, Calif., does not have a drug on the market today. But its leading compound is in clinical trials to treat chorea - movement disorders - related to Huntington's disease, tardive dyskinesia, and Tourette syndrome.

Teva agreed to pay $101 per share, a 47 percent premium on Auspex's closing price on Friday and a reflection of a surge in pharmaceutical industry takeovers in the last year.

Auspex uses a chemical process called deuteration - adding a heavier isotope - to a known drug compound, to improve the safety and efficacy of the original. After closing the deal, Teva would have access to about 60 compounds that Auspex is developing.

Teva and Auspex said the compound SD-809 (deutetrabenazine) would likely be submitted for review by the U.S. Food and Drug Administration this year and, if approved, might be launched as early as 2016 to treat movement disorder related to Huntington's disease. Teva did not expect meaningful profits until 2017.

The FDA has already granted orphan drug status to the compound for Huntington's. Orphan status often means greater market exclusivity - and a higher price for patients and insurers and higher profit for the drugmaker.

This orphan compound is a bit different because SD-809 is the updated version of a drug that will face generic competition later this year.

Auspex - and now Teva - hope patients and insurers will pay for the updated version. Likewise, Teva hopes that other clinical trials underway will lead to FDA approval for use in other diseases.

Chief executive officer Erez Vigodman told analysts on Feb. 5 that Teva was looking to buy other companies with programs that align with Teva's current businesses.

"This transaction represents a first major step with regards to that commitment and we expect to continue this focus in the future," Vigodman said Monday in a statement.

Teva, which is based in Israel and has facilities in Pennsylvania and New Jersey, remains the world leader in generic drug revenue. But generic rivals have been gaining on Teva, so it has tried to improve efficiency. That has meant job cuts, including at the plant in Sellersville, Bucks County, but it also involves buying supplies, simple or complex, at lower prices.

On the branded drug side, Teva has tried to lessen its profit dependence on Copaxone, a brand-name drug to treat multiple sclerosis. In 2014, Copaxone accounted for $4.2 billion or 21 percent of Teva's total revenue and "contributed a significantly higher percentage to our profits and cash flow from operations during such period," the company said in its annual report to the SEC. But the last of Copaxone's key patents expires in September.

Anticipating corporate acquisitions - and corresponding profits - investors have boosted Teva's stock to a five-year high in recent weeks. Market speculation has Teva looking to buy Pittsburgh-based generic rival Mylan Inc.

"The value created in this deal is basically in what Teva would do with the pipeline," Bernstein Research analyst Ronny Gal said Monday in a note to clients. "We also note that to the extent Teva would like to make a 'transformative' deal in the generic space, this deal is small enough not to impact that potential."