Watson adds action and strength to generics position

Pharma acquires privately held generic drugmaker Actavis Group for $5.4 billion

Amy Swinderman
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PARSIPPANY, N.J.—Leading the pack in a flurry ofmultibillion-dollar pharma industry acquisitions last month was WatsonPharmaceuticals Inc., which announced on April 25 a definitive agreement topurchase privately held generic pharmaceutical company Actavis Group for anupfront payment of $5.4 billion.
In addition to that impressive sum, Actavis stakeholderscould receive additional consideration if the company meets certain negotiated2012 performance goals. That contingent payment would result in the delivery ofup to 5.5 million shares of Watson common stock—valued during transactionnegotiations at $320 million based on a price per share of $60—in 2013. Watsonintends to fund the cash portion of the transaction through a combination ofterm loan borrowings and the issuance of senior unsecured notes.
Actavisis derived from the Latin words "acta," meaning "action," and "vis," meaning"strength." The deal certainly gives Watson both. Pending the approvalsthat would close the transaction in the fourth quarter, Watson will become thethird-largest global generics company with 2012 anticipated pro-forma revenueof approximately $8 billion. Watson's international revenues are expected toincrease from approximately 16 percent of total generic revenues at the end of2011 to approximately 40 percent.
The acquisition expands Watson's core leadership position inmodified-release, solid oral-dosage and transdermal products into semi-solids,liquids and injectables. When combined, the company will have 45 First-to-Filesand 30 exclusive First-to-Files in the United States.
In particular, the acquisition significantly increases thescale of Watson's generic business outside of the United States, as Zug,Switzerland-based Actavis has a commercial presence in more than 40 countriesand markets more than 1,000 products globally. The combined company will hold atop 3-market position in 11 markets and a top 5-market position in 15 markets.
"In a single, commercially compelling transaction, we morethan double Watson's international access and strengthen our commercialposition in key established European markets as well as exciting emerginggrowth markets, including central and eastern Europe and Russia," said WatsonPresident and CEO Paul M. Bisaro in a statement announcing the deal. "Thetransaction achieves Watson's stated strategic objective of expanding anddiversifying our business into a truly global company." 
Bisaro added that the acquisition accelerates Watson'stop-line and bottom-line growth profile for the foreseeable future. It will beimmediately accretive to non-GAAP earnings before synergies, and Watsonestimates that annual synergies of greater than $300 million can be achievedwithin three years. The pharma expects additional longer-term cost and revenuesynergies related to optimizing supply chain and product launches in newmarkets.
Claudio Albrecht, executive chairman and CEO of Actavis,said in a conference call to investors that the standalone company has beenpositioning itself for two years to achieve what he called "a milestone in thehistory of Actavis."
"We have successfully placed Actavis in a strong position tomeet the future growth opportunities in the generic pharmaceutical industry,"Albrecht added. "Building on this strong foundation, the combination of Watsonand Actavis will result in a company of the size required to position itself asa strong player in the generic pharmaceutical industry. The two companies arean ideal complementary fit that will enable the combined company to enhance itsposition among the industry leaders. Additionally, together Watson and Actaviswill be well placed in the fast-paced and dynamic biosimilars market."
With 2011 revenues of approximately $2.5 billion, Actavishas approximately 300 projects in its development pipeline and about 1,100products on the market, and manufactured more than 22 billion pharmaceuticaldoses in 2011. The company has more than 10,000 employees worldwide.
According to data compiled by Bloomberg, there have been have beenalmost 120 generic drugmaker takeovers worldwide over the past decade.
"Thisis a really good deal from a strategic standpoint," says RBC Capital Marketsanalyst Shibani Malhotra. "Companies have to be global players to reallycompete in the generics market going forward."

Amy Swinderman

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