A Forest grows around it

Forest Laboratories commences $1.2 billion tender offer for all outstanding shares and certain notes and warrants of Clinical Data

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NEW YORK—Forest Laboratories Inc. said in February it wanted Newton, Mass.-based Clinical Data Inc., and early March saw Forest make that official with the commencement of a tender offer through its wholly owned subsidiary, Magnolia Acquisition Corp., for $30 per share, or about $1.2 billion, plus a contingent consideration of as much as $6 per share based upon achievement of certain milestones related to the antidepressant drug Viibryd.

The transaction is expected to be dilutive, net of synergies, to Forest's earnings per share for the next three fiscal years, with earnings per share dilution in the range of 55 cents to 65 cents in fiscal year 2012. Forest believes the transaction may become accretive during fiscal year 2014, but in any case, Forest's management doesn't expect the acquisition to impact the company's fiscal year 2011 financial guidance.

The merger should be complete in the second quarter of this year, but that's subject to all standard closing conditions and regulatory approval, and of course the investors actually selling their shares—and there is some resistance out there on the latter front, although it was unclear at press time whether this will hold up the process.

More than a dozen law firms actually launched investigations into the acquisition on behalf of shareholders after the acquisition plans were announced in February. Also, at least one specific shareholder, Bradley Wojno, is suing the company and its board, seeking class-action status and asking the court to block the proposed sale to Forest.

One of the most notable among these—at least for getting the most press coverage of its actions—was the Briscoe Law Firm in Texas. The primary reason cited by that firm and others was that the acquisition price offered to Clinical Data shareholders represented a roughly 12 percent discount from the company's closing price of $33.90 just days before the merger announcement.

"Based on the fact that the acquisition price is below the company's closing price just days before the acquisition announcement, and the fact that the additional compensation to shareholders is contingent and based on future performance of the company's drug, which has not gone to market yet, we do not believe that the proposed acquisition is fair to Clinical Data shareholders," said shareholder rights attorney Willie Briscoe in late February. "We want to ensure that the shareholders are receiving the maximum value for their stock."

From the perspective of Forest, though, the upfront consideration of $30 per share represents a 6.6 percent premium to the volume-weighted average trading price of Clinical Data's stock since the first trading day after the company announced the approval of Viibryd and indicated that it was considering a potential change of control transaction.

Forest already has a reputation and presence in the antidepressant market with Celexa and Lexapro, but is looking to bolster that and leverage against patent expiries through the launch of Viibryd in the second half of this year. That drug, developed by Clinical Data and approved by the U.S. Food and Drug Administration (FDA) in mid-January for the treatment of adults with major depressive disorder (MDD), is a selective serotonin reuptake inhibitor and a 5-HT1A receptor partial agonist. According to figures from Forest, the market for the treatment of MDD is more than 200 million prescriptions annually and on the rise. Forest plans to launch Viibryd in the United States during the second half of 2011, and Viibryd expected to retain market exclusivity until March 2020, including full patent term extension of its composition of matter patent and anticipated pediatric exclusivity.

Some market watchers remain wary, with Gary Nachman, an analyst at Susquehanna International Group, telling Bloomberg that it was uncharacteristic for Forest to put out this level of cash up front. Nachman says that because Forest has "a lot of cash left," he expects it to do more deals, but said he "would have liked to see them do something that's more accretive within the next few years."

Piper Jaffray & Co. analyst David Amsellem had his own reservations to add to that, saying that Forest's idea to leverage its existing sales force to drive more than $1 billion in annual sales for Viibryd isn't realistic in a market with such heavy generic penetration. He says "the days of the blockbuster antidepressant are largely behind us," and expects annual sales of Viibryd to peak at between $500 million and $700 million.

Global independent market analyst firm Datamonitor, on the other hand, sees the acquisition as a shrewd move that makes a better future for Forest's antidepressant portfolio, with healthcare analyst Daniel Chancellor noting: "Since gaining FDA approval for its novel antidepressant Viibryd, Clinical Data has become a prime acquisition target. A partner with an existing presence in the depression market is vital in order to maximize the drug's commercial potential. Forest fits the bill perfectly. The company will be able to leverage its existing sales and marketing experience accrued through the successes of Cipralex and Lexapro. It also refreshes a pipeline that suffered a recent setback with negative Phase III data for levomilnacipran."

In Datamonitor's view, Viibryd will be positioned by prescribers as an option for patients experiencing an inadequate response or intolerable side effects from conventional antidepressant therapy, and Chancellor adds: "The acquisition of Clinical Data will provide Forest with a means to partially offset the impact of generic erosion of its blockbuster antidepressant Lexapro from 2012."

With a purchase price about twice what OppenheimerFunds expects for Viibryd peak sales, the investment firm says it believes the transaction is fairly valued, with their official note on the acquisition adding: "Most importantly, this transaction gives Forest access to Viibryd, a treatment for major depressive disorder with a differentiated mechanism of action and side effect profile (lack of sexual side effects), as well as patent protection through 2020, which we believe will penetrate a meaningful portion of the multi-billion dollar anti-depressant market."

Zacks Investment Research, for its part, remains on the fence, noting that Forest Labs is well positioned for the commercialization of Viibryd because of its strong presence in the antidepressant market with products like Celexa and Lexapro in its portfolio. However, the firm adds: "While we believe Viibryd is a good fit in Forest Lab's portfolio, we remain concerned about the near-term dilutive impact of the deal. Moreover, we note that Viibryd will be entering a highly genericized market, which may make it challenging for the product to gain market share."

Forest is confident, at least in its public statements, about its ability to make this acquisition work, and agrees with many of the analysts' thoughts that it is well positioned to bring Viibryd to market in a successful manner. It also makes strategic sense, says Howard Solomon, the chairman, CEO and president of Forest.

"This transaction is consistent with our strategy to acquire new products that will help offset the loss of revenues due to patent expiries," Solomon says. "Viibryd will be the second new product that we expect to launch this year in addition to Teflaro. In addition, we are hopeful to obtain FDA approval later this quarter for Daxas for the treatment of COPD. We plan to submit New Drug Applications for aclidinium and linaclotide in the second half of this year and for two additional products in calendar 2012."

In addition to Viibryd, the acquisition of Clinical Data will bring to Forest the drug Stedivaze, a coronary vasodilator in Phase III development as a pharmacologic stress agent for radionuclide myocardial perfusion imaging.

Solomon notes that the launch of Viibryd will require significant incremental marketing and sales investment, including a planned sales force expansion.

"Additional sales resources will be necessary in order to adequately support Viibryd, as well as our currently marketed products Teflaro, Savella, Bystolic, Namenda and Lexapro and the anticipated launch of Daxas, pending FDA approval in calendar 2011," he notes.

Forest, Asthma Research Institute join SAFE-BioPharma

FT. LEE, N.J.—In a move to improve efficiency by reducing paper in their respective operations, Forest Laboratories and the Allergy Asthma Research Institute have joined the SAFE-BioPharma Association, a nonprofit consortium of biopharmaceutical and related companies, with participation from the U.S. Food and Drug Administration and the European Medicines Agency.

By joining SAFE-BioPharma, Forest and the Allergy Asthma Research Institute gain access to the association's digital identity and signature standard, which is used throughout the biopharmaceutical industry to verify and manage digital identities involved in electronic transactions and to apply digital signatures to electronic documents.

Participation in SAFE-BioPharma standard provides access to SAFE-BioPharma interoperable digital identity credentials, a form of software installed on a computer, cell phone or other device which establishes a close link with the user's proven identity and allows for the application of legally binding, digital signatures to electronic documents. SAFE-BioPharma digital identity credentials are trusted within U.S. federal agencies and in other industries. SAFE-BioPharma digital signatures are recognized by regulatory agencies throughout the U.S. and Europe.

"Forest Laboratories and the Allergy Asthma Research Institute are streamlining their systems by shifting to interoperable digital identities and digital signatures. We welcome them to the growing SAFE-BioPharma cyber-community," says Mollie Shields-Uehling, president and CEO of SAFE-BioPharma.

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