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Will the generics M&A surge put Teva on the takeover table? Investors think so

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Murmurs that Israel's generic drug giant Teva Pharmaceuticals ($TEVA) may be for sale reached fever pitch last week, driving its stock up nearly 10% to $48.45--its biggest advance since 2008. According to data compiled by Bloomberg, Teva's trading volume was 62% higher than its 12-month average last week, yet the company has the second-lowest valuation among the 11 major global generics makers.

New Teva CEO Erez Vigodman

The M&A speculation has been fueled by a combination of events both at Teva itself and in the generics industry as a whole. Ever since turnaround pro Erez Vigodman was selected to replace Teva's departed CEO Jeremy Levin in January, investors' hopes for a change of fortune have mounted. And in a letter published on the Tel Aviv stock exchange Jan. 22, the company pledged to review the size and composition of its board, which has been a bone of contention for shareholders.

The changes came amid a string of stumbles involving laquinimod, Teva's new multiple sclerosis treatment. The drug was meant to help replace Teva's $4-billion-a-year MS blockbuster Copaxone, which is on the verge of losing patent protection. But European regulators gave laquinimod the thumbs-down in late January, citing safety issues. And questionable Phase III study results have raised doubts about whether the drug can compete with Biogen Idec's ($BIIB) recently launched Tecfidera anyway.

Meanwhile, M&A activity in the generics industry is on the rise. On Feb. 18, generics giant Actavis ($ACT) said it would buy Forest Labs ($FRX) for $25 billion. Actavis itself is the product of a merger with Watson and a follow-up $5 billion buyout of Warner Chilcott. And Actavis is one of the companies rumored to be eyeing a takeover of Pfizer's ($PFE) generics unit. Analysts aren't surprised, therefore, that Teva has been swept up in all the excitement over potential marriages in the generics business.

The fact that Vigodman has finally taken Teva's reins--as of Feb. 11--also helped goose the stock upward. "What you're seeing is the company being revalued on the fact that there's a new CEO, the board will become smaller and more strategically focused, and they will deliver cost savings," Jason Kolbert, a biotechnology analyst at Maxim in New York, told Bloomberg. "That combined with the M&A activity is causing a revaluation in Teva."

- here's the Bloomberg story

Special Reports: Top 10 Generics Makers by 2012 Revenue - Teva | Top 10 Drug Patent Losses of 2014 - Copaxone

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