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THE TEVA VS. MYLAN DRUG WAR In the battle of the giants it is ’s Teva that is the heavyweight, and the American company, the lightweight

TELENOVELAS ARE fast-paced TV serial 7,500 people. ’s board of directors The answer is “inversion.” This is a eu- dramas, popular in Latin America, quickly rejected Mylan’s bid, saying it was phemism for tax avoidance. (Avoidance and the Arab world, that usually tell one simply not enough. is legal; evasion is illegal.) Last Decem- self-contained story, within the span of a Perrigo has a strong connection to Isra- ber, the American fast- chain Burger year. el. In March 2005, Perrigo bought Agis, King bought the Canadian chain I have a great telenovela script. It in- an Israeli drug company founded by Mori Tim Hortons and moved its headquarters volves a big company trying to swallow Arkin in 1983 and built on his father’s to Canada. This saved Burger King an al- a smaller one, which in turn is aiming to drug-importing business, for $850 million. leged $1.2 billion in taxes because foreign swallow an even smaller firm. There is Arkin, a genius, built Agis into a multina- firms get huge tax breaks. a poison pill – the financial kind, not cy- tional generic pharmaceutical company. By locating your headquarters in Can- anide – and conflict between two fierce He got nine percent of Perrigo’s stock and ada or , you pay tax at low Euro- protagonists, one Lebanese-American, joined its board. pean or Canadian rates instead of high US another Israeli. For ordinary Israelis, un- corporate tax rates. This creates a huge in- derstandably somewhat fuzzy about what WHO WILL WIN THE centive for US firms to relocate abroad, or is going on, the stakes are quite high. “invert.” True, they have to pay US taxes The best part? It’s all true. No need to ‘MONKEY IN THE when they bring their profits home. But, invent anything. In this case, truth is defi- of course, they rarely, or never, do. Why nitely far more gripping than fiction. MIDDLE’ GAME WITH would they? Here are the basics. According to ex- MYLAN BETWEEN TEVA Why does the US allow this? A recent re- perts, there is an “arms race” in the global port shows that Walmart has $76 billion in pharmaceutical business. Facing growing AND PERRIGO? profits held abroad, where they do no good resistance to the soaring cost of drugs and for America. Apple has a whole lot more – health care, Big Pharma is racing to merge $158 billion in offshore cash. If you think and acquire, find synergies and slash costs. Many observers feel that Agis and its this is a dumb policy, I agree. The US, es- In the first three months of 2015 alone, Israeli team injected new energy and cre- sentially, is encouraging its companies to there were $125 billion of acquisitions ativity into Perrigo. Its stock has soared keep their profits abroad, rather than invest globally. from $58 in August 2010, to $198 in May, them in their own country. Does this re- For example, on April 8, Mylan offered before receding to about $188 on June 17. I mind you of the Wise Men of Chelm? to acquire Perrigo, eventually raising its was fortunate to work with Perrigo, when Why does Mylan want to buy Perrigo? bid to $33 billion. Mylan is a generic and I served as academic director of the Tech- Some analysts think it is a countermove, specialty pharmaceutical company, found- nion Institute of Management, just after to forestall a potential takeover by global ed in 1961, in West Virginia, and now reg- the acquisition of Agis. I know for a fact generics giant Teva. istered in the Netherlands with more than that Agis brought great innovative drive to Teva grew from $1 billion in revenue to $7 billion in annual revenues. It employs Perrigo. $10 billion, with Israel Makov at its helm. about 22,000 worldwide. There is an important subplot. Why are Makov grew Teva by acquiring many Perrigo is an American company regis- two American companies, Mylan and Per- tered in Ireland, specializing in over-the- rigo, with strong roots in Pittsburgh and counter drugs. Its annual revenues are Michigan, respectively, headquartered in Teva’s global logistics center at Shoham nearly $4 billion, and it employs about Netherlands and Ireland? along Highway 6

36 THE JERUSALEM REPORT JULY 27, 2015 THE JERUSALEM REPORT JULY 27, 2015 37 90 FLASH / PARUSH HADAS MARKETPLACE smaller companies and then integrating making Teva’s offer rather cheap. But, in representation. The real war will be for the them cleverly and rapidly into Teva’s oper- the game of acquisition, companies often shareholders.” ations. He left Teva in 2007 after a dispute start low and gradually sweeten their offer. An unusually fierce exchange of letters with chairman Eli Hurvitz, who died in Teva could go as high as $120 per share for has occurred. Vigodman and Teva Chair- 2011. A period of turmoil followed, when Mylan, whose stock is currently around man Yitzhak Peterburg wrote in a letter to Shlomo Yanai became CEO, followed by $72. Analysts think Mylan shareholders Coury on June 1, “Mylan has made gross- a South African, Jeremy Levin, in May might even agree to an offer of $100 a ly incorrect statements to mislead your 2012. share, giving them a tidy profit. stockholders and other stakeholders about us.” TEVA’S DIRECTION and energy were Coury fired back the same day. “Dear restored when Erez Vigodman became ALL OF US HAVE A Erez, your public statements continue to CEO in February 2014 (see The Jerusalem KEEN INTEREST IN leave Mylan and its shareholders with Report, March 10, 2014). Vigodman, a great uncertainty about Teva’s intentions.” certified public accountant, was CEO of the TEVA’S WELL-BEING, He demanded that Teva make an offer with Strauss Group, leading it to global stature, a “hell or high water” provision, in which then did a turnaround with chemicals AND WE SHOULD ALL Teva agrees, no matter what, to whatever company Makhteshim Agan, before it was provisions the US Federal Trade Commis- acquired by ChemChina. BE PULLING FOR TEVA sion requires. Earlier, Coury wrote that He has restored Teva’s aggressive policy Teva “has engaged in a pattern of making of growth by acquisitions. Teva’s annual noncommittal, unclear, inaccurate and revenues are about $20 billion and it em- But a fierce battle is underway. If Teva non-specific statements to shareholders… ploys some 50,000 worldwide. Teva has does acquire Mylan, and if Mylan fails regarding its intensions with respect to plants in many countries and continues to to acquire Perrigo, Coury and Mylan’s Mylan.” produce drugs in Israel, at large facilities in dynamic CEO Heather Bresch will likely Coury has erected several major road- Kfar Saba and Har Hotzvim in Jerusalem. lose their jobs. No reason to mourn – they blocks to a Teva takeover. One is a “poison The protagonists in our telenovela are will both be extremely wealthy through pill” ‒ Wall Street slang for a defensive two larger-than-life business leaders: Rob- their Mylan shares. Teva has a history of tactic used by corporate boards against ert Coury, an American, Chairman of My- leaving the leadership of acquired compa- a takeover, which gives shareholders the lan, and Vigodman, CEO of Teva. Coury’s nies in place, but Coury and Bresch have right to buy shares at a big discount if one family, of Lebanese ancestry, was proba- fought fiercely against Teva’s takeover. So, shareholder (i.e. Teva) buys, say, 20 per- bly called “Khoury.” He built a successful if Teva wins, they lose. cent or more of a company’s stock. This consulting firm, advising Mylan, then took In the 1972 film “The Godfather,” Mi- dilutes the stock and greatly increases the over Mylan in 2002 and through $15 bil- chael Corleone, with a long trail of dead cost of the takeover. lion in acquisitions transformed it into a bodies on his conscience, says to Sonny, global powerhouse. “It’s not personal. It’s just business.” Nor- SOME EXPERTS think that Mylan’s Among Coury’s purchases was the $5.3 mally takeovers are just business. But “poison pill” is in violation of NASDAQ billion acquisition of the generics and non- this battle between Teva and Mylan has stock exchange rules. But remember that US business of Abbott, a global pharma gi- become unusually personal. It is not just “inversion”? Mylan is a Dutch company. ant. This gave Mylan a Netherlands base, business. The poison pill, apparently, is perfectly and a very large tax saving. Abbott holds Eli Hurvitz’s son, Chaim, a major Teva fine under Dutch law. That tax inversion, it 14 percent of Mylan stock, as part of the shareholder and former director, told the turns out, is unexpectedly helping Mylan deal. business daily Globes: “Mylan was always avoid being swallowed by Teva. However, Fast forward to the month of April. Did a bitter competitor of Teva, and there was Mylan stock is traded on NASDAQ. So Coury, and Mylan, sense that Teva was bad blood between the companies going whose rules prevail? aiming to take it over? Did Mylan bid for back to my father’s period, among other A second tactic Coury is using is US Perrigo to keep Teva from bidding for it? things because of chairman Coury. antitrust legislation. Teva and Mylan have Mylan and Perrigo are a poor fit. Mylan is “The competition was in business, but several competing market-leading prod- not keen on Perrigo’s ace card ‒ over-the- there was also a very emotional and per- ucts and a merger could be in violation of counter drugs. sonal, possibly even nationalistic aspect US antitrust laws. Coury and Mylan are in- On the other hand, analysts agree that [because of Coury’s Lebanese origin]. voking this, warning that a potential Teva Mylan is a perfect fit for Teva. An acquisi- This is Coury by the book ‒ a very vit- takeover could be stuck in the courts for tion of Mylan could increase Teva’s profits riolic person with a lot to lose. He would years. Teva, of course, has sought US an- 15 percent next year, and Teva could save lose the private planes, cars, and every- titrust approval before it makes an official, $2 billion in annual synergies. thing else. We all expected this part. The binding offer for Mylan shares. Teva has now offered to purchase Mylan Mylan board of directors is composed half A third strategy is inviting the neigh- for $40 billion. The market capitalization of management, which is in effect subordi- borhood enforcer to beat up the bad guy. of Mylan’s shares is, at present, $34 billion, nate to him. The shareholders have no real Mylan did its “inversion” in order to save

38 THE JERUSALEM REPORT JULY 27, 2015 tax bucks. But it turns out the deal gave Abbott 14 percent of Mylan shares and a major say in board decisions (one vote in every seven). Abbott is not fond of Teva, to say the least. As a generic drug producer, Teva for years has slashed Big Pharma profits by rushing to sell generic versions of their patented drugs the moment the patent ex- pires after 20 years. For Big Pharma, Teva is the Big Bad Wolf. So Abbott, one of the world’s largest pharma firms, would like nothing better than to do harm to Teva. Abbott has weighed in, opposing the Teva offer. Meanwhile, Teva is fighting back. It is buying Mylan stock on the open market, boosting its holdings to more than four percent of Mylan’s shares and giving it the right to bring issues to board meetings. This can enable Teva to gain a board hear- ing for its offer when, otherwise, the board could even block discussion of Teva’s bid. As of now, Teva owns over 4.6 percent of Mylan stock and can now bring suit in the Amsterdam Court of Appeal to challenge the Mylan board’s effort to block Teva’s takeover. Meanwhile, Mylan’s Vice President for Finance John Sheehan flew to Israel on June 24 to meet with the CEO of the (TASE) Yossi Bein- art. His goal: Set the stage for listing My- lan’s shares on the TASE, if Mylan does acquire Perrigo. Sheehan also met with institutional investors who hold Perrigo stock, hoping to persuade them to back Mylan’s offer. Why does this whole mess matter to us Israelis? Teva’s shares are listed both on NASDAQ and the Tel Aviv Stock Ex- change. Teva shares are the most traded REUTERS / EAST CHIP on the TASE, by far, and their rise and fall Robert Coury, Chairman and Chief Executive Officer of Mylan: have a powerful influence on the stock ex- Fighting fiercely against a takeover by Teva change’s main index. Also, many pension funds hold Teva shares. So all of us have a keen interest in Teva’s (Teva’s strong point with its Copaxone Teva? Will Coury defeat Vigodman? Or well-being, and we should all be pulling drug) and Crohn’s disease. It has offered will Vigodman triumph? for Teva, in this telenovela, to succeed in $280 a share, or $8.7 billion, and is com- Strangely, in this telenovela, it is Isra- taking over Mylan. Teva shares rose to $66 peting with two other whales, AstraZen- el’s Teva that is the heavyweight, and the on NASDAQ in April, but have fallen to eca and Gilead Sciences, who also want American company, the lightweight. around $60 as the Mylan takeover ran into to swallow the minnow. Place your bets. Stay tuned. The next ep- difficulties. Who will win the “monkey in the mid- isode is going to be really interesting.  Amazingly, while all this turmoil is go- dle” game, with Mylan between Teva and ing on, Teva also is bidding to take over Perrigo? The fierce opposition of Coury and The writer is senior research fellow at the Receptos, a US company that has drugs Mylan, with some powerful friends? Or the S. Neaman Institute, Technion and blogs at in development for multiple sclerosis deep pockets and stubborn persistence of www.timnovate.wordpress.com

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