Teva to Buy Auspex for $3.5 Billion to Boost Neurology Arm

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Teva Pharmaceutical Industries Ltd. agreed to buy Auspex Pharmaceuticals Inc. for about $3.5 billion in cash to gain drugs that curb tics and other movement disorders.

Teva will begin a tender offer of $101 a share for La Jolla, California-based Auspex, the companies said in a statement today. That’s 42 percent above Auspex’s closing price on Friday. Auspex’s shares rose to $100.57 at 10:36 a.m. New York time.

Drugmakers are turning a hunt for orphan and rare-disease medicines into a buying frenzy. The purchase will add to what has already been the biggest start to the year for pharmaceutical and biotechnology takeovers since 2009, according to data compiled by Bloomberg. Also today, Horizon Pharma Plc agreed to buy Hyperion Therapeutics Inc. for $1.1 billion to gain medicines to treat rare metabolic diseases.

“Teva and its competitors are under pressure to do deals for new technologies and the competition is intense,” said Ori Hershkovitz, founding partner and chief investment officer at Nexthera Capital, a New York-based hedge fund. “This is a good deal for Teva. It will add to its product line in the central nervous system space and shows that it’s serious about growing its branded business.”

Copaxone Generics

Chief Executive Officer Erez Vigodman is seeking deals to offset generic competition to Teva’s best-selling multiple-sclerosis drug Copaxone, which by analysts’ estimates accounts for about half of profits. A generic may reach the market as soon as this year and Teva has sought to convert patients to a longer-acting version of the drug.

Horizon Pharma, which makes products to treat arthritis, inflammation and rare illnesses, will also be bolstering its drug pipeline with the acquisition of Hyperion. The Brisbane, California-based company has two drugs to treat urea cycle disorders, inherited ailments that can cause a buildup of ammonia in the body.

Investors reacted positively to Horizon’s purchase, sending the company’s shares up as much as 17 percent.

Horizon will offer Hyperion holders $46 a share in cash, the companies said in a statement. That’s 7.6 percent above Friday’s closing price and about 35 percent above the average for the past two months. Hyperion’s shares rose to $46.52 as of 10:37 a.m. Before today, the stock had soared 78 percent this year, in part because of takeover speculation.

Mylan Speculation

More deal speculation was kindled last month when Teva’s Vigodman said the Israeli drugmaker would seek acquisitions, drawing attention to potential targets including generic rival Mylan NV. Investors bid up Teva’s stock to a five-year high, part of what’s shaping up to be the biggest monthly rally in more than a year.

Teva’s American Depositary Receipts rose 2.2 percent to $63.31, giving the company a market value of almost $54 billion. They have added more than 9 percent this year. Mylan shares dropped 3.7 percent in New York.

Teva will continue pursuing deals this year and is still open to the possibility of a “large” transaction if the right opportunity comes along, Vigodman said on a conference call today. Chief Financial Officer Eyal Desheh said Auspex’s pipeline could yield as much as $2 billion at its peak.

Shareholder Support

Other recent pharma acquisitions include AbbVie Inc.’s $21 billion bid for cancer treatment developer Pharmacyclics Inc. and Pfizer Inc.’s agreement to buy injectable-medicine maker Hospira Inc. for about $17 billion.

Key Auspex shareholders have indicated their support for the Teva transaction, according to the joint statement announcing the deal. Auspex’s pipeline fits into Teva’s strategy of building up its stable of drugs for the central nervous system, according to Hershkovitz.

Auspex’s experimental products include new versions of Tetrabenazine, a product sold to quell the jerky body movements associated with Huntington’s disease and Tourette’s syndrome, and levodopa for Parkinson’s symptoms.

Auspex uses deuterium, or heavy hydrogen, to tweak drugs to try to broaden their range of action. The company has no revenue and plans to submit the reformulated version of Tetrabenazine, called deutetrabenazine or SD-809, for U.S. approval by the middle of the year in Huntington’s disease, a neurodegenerative genetic disorder that affects muscle coordination. The medicine may garner annual revenue of $1 billion once approved, Hershkovitz estimated.

Goldman Sachs Group Inc. acted as Teva’s financial adviser while Goodwin Procter LLP served as legal counsel. Morgan Securities LLC was the financial adviser to Auspex and Cooley LLP its legal counsel.