Actavis plc plans to buy Forest Laboratories Inc. in a cash and equity deal valued at $25 billion.

Actavis, Forest Laboratories, acquisition, specialty drug, specialty pharmaceuticals, Paul Bisaro, Brent Saunders, pharmaceutical companies, generics, Watson, Warner Chilcott

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Actavis to acquire Forest Laboratories for $25 billion

February 18th, 2014

DUBLIN, Ireland, and NEW YORK – Actavis plc plans to buy Forest Laboratories Inc. in a cash and equity deal valued at $25 billion.

The pharmaceutical companies said Tuesday that the acquisition agreement will significantly expand their North American specialty drug portfolio, creating "blockbuster product franchises" in the central nervous system (CNS), gastroenterology, women's health, urology and cardiovascular therapeutic categories.

In addition, the combined company will have emerging and sustainable portfolios in infectious disease, respiratory, cystic fibrosis and dermatology categories, according to Actavis and Forest.

The combined company also will have investment in new product development exceeding $1 billion on an annual basis, adding more than a half-dozen near- and mid-term research-and-development products to Actavis' development portfolio. Five Forest products are at the New Drug Application (NDA) stage of development, including treatments for Alzheimer's disease, cardiovascular disease, infectious disease, schizophrenia and bipolar disorders, as well as treatments for chronic obstructive pulmonary disease (COPD).

Plans call for combined company to be led by Paul Bisaro, chairman and chief executive officer of Actavis, which has its global headquarters in Dublin, Ireland, and its U.S. headquarters in Parsippany, N.J. The integration will be led by the Actavis and Forest senior management teams, with integration planning slated to start immediately to ensure a rapid transition after the deal is finalized, the companies said.

Actavis has agreed that three members of the Forest board will be named to the Actavis board after the agreement is completed.

The transaction, which has been unanimously approved by both companies' boards, is expected to close in the middle of this year, pending shareholder and regulatory approvals.

"With this strategic combination, we create an innovative new model in specialty pharmaceuticals leadership, with size and scale; a balanced offering of strong brands and generics; a focus on strategic, lower-risk drug development; and, most important, the ability to drive sustainable organic growth," Bisaro said in a statement. "Bolstered by one of the deepest and most diversified product portfolios in the industry, with an exceptionally strong pipeline, this transaction creates a powerful engine for generating long-term, double-digit revenue and earnings growth."

Actavis and Forest noted that the deal creates a "world-class commercial organization" that competes across multiple market segments. The combined company's U.S. sales force has broad marketing reach with primary care doctors, psychiatrists, neurologists, infectious disease specialists, cardiologists, pulmonologists, gastroenterologists, ob/gyns, urologists and dermatologists.

Also, the companies said, the combined business will be better-positioned to leverage the Actavis Specialty Brands portfolio to a wider physician base in the United States, as a result of Forest's strong presence in primary care sales.

"The combination of Forest with Actavis creates a specialty company with annual sales of approximately $15 billion, a diversified portfolio and a geographically balanced business," stated Brent Saunders, president and CEO of Forest Laboratories. "This compelling combination gives us more options to drive future growth and sustainable shareholder value due to our expanded geographic and therapeutic presence, ability to drive new product flow through R&D, strong balance sheet and consistent cash flow."

Saunders called the pairing of the companies "a great fit" considering Forest's strong legacy in branded specialty and primary care pharmaceuticals, top-notch drug development organization and history of successful partnerships. "The acquisition builds on our blockbuster line call strategy in CNS and GI and dramatically extends our reach beyond the U.S. market," he explained. "By joining forces with Actavis, we become more relevant to key physicians and customers through blockbuster franchises in CNS, women's health, GI and urology, as well as Actavis' global generics business."

On a pro forma combined basis for full-year 2014, the combined company will have an approximately $2 billion CNS franchise; GI and women's health franchises valued at about $1 billion each; a cardiovascular franchise that generates about $500 million; and urology and dermatology/established brand franchises approaching $500 million a year in sales each.

Actavis and Forest reported that the combination will result in specialty brand sales comprising about half of the merged company's pro forma revenue, compared with about 30% of North American specialty brand sales for Actavis on its own.

Together, Actavis and Forest are expected to yield double-digit accretion to non-GAAP earnings in 2015 and 2016, with significant annual free cash-flow generation of greater than $4 billion in 2015. The combination also has the potential to realize about $1 billion in operating and tax synergies, before any manufacturing or revenue synergies, the companies said.

"In addition to being financially and commercially compelling, this transaction fundamentally transforms Actavis, positioning it for a new and even more exciting future," according to Bisaro. "In five short years, my management team has transformed Watson, and now Actavis, from a U.S. generics company to a leader on the global specialty pharmaceutical stage. Brent and his team, in a short period, have made dramatic progress in rejuvenating Forest into a leader in North American brands.

"As chairman of Actavis, I am in a unique and enviable position of having two exceptionally experienced and successful management teams committed to creating a new future for the combined company," Bisaro added. "I am especially pleased that Brent will be joining the Actavis board of directors and has agreed to work with me following the close to build a world-class company focused on sustainable, double-digit growth. Over the next several months, as we prepare for the integration and closing, our teams will define the structure necessary to capitalize on Actavis' global leadership in brand, generic, biosimilar and OTC pharmaceuticals."

Under the terms of the agreement, Actavis will acquire Forest for a combination of cash and equity valued at approximately $25 billion, or $89.48 per Forest share ($26.04 in cash and 0.3306 Actavis shares for each share of Forest common stock). The companies said the per-share consideration represents a premium of about 25% per share over Forest's stock price and a premium of 31% over its 10-day volume-weighted average stock price, as of the close of trading on Feb. 14. 

The Forest deal marks the third major acquisition by Actavis over the past couple of years. In October 2012, Watson Pharmaceuticals Inc. finalized its $5.6 billion acquisition of Actavis Group and adopted Actavis as its new global name starting in 2013. And then in October 2013 Actavis closed an $8.5 billion deal to acquire Dublin-based Warner Chilcott. With that move, Actavis and Warner Chilcott combined under a new global company, Actavis plc, incorporated in Ireland and based in Dublin.

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