Teva CEO: We can reach sales targets without further buys

Teva CEO Shlomo Yanai told analysts in New York on Friday that the acquisition of German drug maker Ratiopharm can be seen as a "down payment" on Teva's commitment to boost sales volume from $14 billion in 2009 to $31 billion in 2015.

Yanai refered to Teva's strategic plan from January, in which the company's goals were reflected in the slogan "Everyone is 31," meaning working toward a sales target of $31 billion.

He added that with the acquisition of Ratiopharm, Teva would be able to realize its 2015 target of $9.2 billion in European sales through internal growth and without further acquisitions. Yanai hinted that Teva's acquisitions at this point would concentrate on companies that develop proprietary, non-generic drugs in specialized fields. He said the Ratiopharm deal would nearly double Teva's lead in the generic field over its nearest competitors.

One of the major advantages of the deal, he noted, is the substantial boost that it gives Teva in the German market.

Yanai said it would put Teva within 100 million euros of the sales volume of Germany's largest generic firm, HEXAL, a division of Sandoz.

The CEO of Teva Europe, Gerard Van Odijk, joked that he was sure there were a few offices in southern Germany where people are already looking behind their backs because they can hear Teva coming up behind them.

He stressed that the potential lay not only in Germany and said Teva would be the largest generic firm in 10 of the key European Union markets, representing 45% of the EU's population. He said the acquisition of Ratiopharm will allow a 70% increase in sales of all of its new products, without raising development costs.

Yanai said he expected that Ratiopharm's 307 million euros in EBITDA in 2009 would also be representative of the outlook for the future.

Teva's CFO, Eyal Desheh, said the Ratiopharm deal would raise the company's overall debt to $7.6 billion, and the debt-to-EBITDA ratio, which was 1.3 at the end of last year, to 1.6. The deal will increase the ratio between debt and the company's balance sheet from 23% to 28%, but Desheh said that within two or three quarters Teva will get it back to 23% and return the debt-to-EBITDA ration to 1.3 by the end of this year, even before the acquisition is completed.

Payback within less than a year

Desheh said Teva would finance the transactions through short-term credit of $2 billion at an interest rate of no more than 2%, so that the cost of financing would also work in the company's favor. He said he thought the company would pay back the loan from cash flow from current operations in less than a year.

Van Odijk and Desheh also addressed two central issues that disturbed analysts regarding Teva's projections. One analyst questioned Teva's predicted $400 million in savings within three years, saying it would compare to 18% of Ratiopharm's revenues and 23% of the German firm's overall expenses.

Desheh replied that most development work will be performed by the combined operations of the two companies, at less expense and in less time.

He also pointed to savings in outlays for sales operations, administrative activity and general expenses.

Desheh said Ratiopharm had 26 subsidiaries in countries in which Teva also operates, making a merger of their sales and headquarters operations possible. He said tax savings and hopes for increased sales as a result of the company's expanded range of products and broader geographic reach of the combined operations are not included in the projected synergies.

He added, however, that in past acquisitions, Teva had managed to lower the acquired firm's tax burden, primarily through transfer pricing of active raw ingredients produced for companies it had acquired.