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Not 'Growthy,' Tax-Wise Deal: Actavis Takes Warner Chilcott


By Randy Osborne
Staff Writer

Generic drugmaker Actavis Inc.'s plan to take over Dublin, Ireland-based Warner Chilcott plc in a stock-for-stock transaction worth about $8.5 billion, thus forming the world's third-largest specialty pharmaceutical firm, would put the combined firm – with about $11 billion in annual revenues – on even more solid footing in the busily consolidating biosimilars realm.

"Due to the Irish takeover rules, there's very little we can say at the moment," Paul Bisaro, president and CEO of Actavis, told investors during a conference call. After the deal closes, which is expected to happen before the end of the year, the parties involved can be "more aggressive and more open with you, but under the current rules, we have to be very circumspect about what we can say."

Frederick Wilkinson, president of specialty brands for Actavis, said that "the 'top three' is not the critical piece" of the story. Instead, it's the effort in research and development as well as in-licensing to "try to meet the needs of what specialists do in their practices all day long."

In women's health, for example, the important areas are contraception, hormone replacement and osteoporosis. "This takes us into all three top categories in the group," Wilkinson said of the deal with Warner.

"Obviously, expansion to [urology] has been critical," he added. "We have been evaluating, and I think have been clear that we've been evaluating, other specialty areas, so the idea of jumping into [gastrointestinal disorders] and dermatology has always been something that we've been contemplating, and this takes us there."

Under the terms, Warner shareholders would receive 0. 160 shares of Actavis for each Warner share they own: a value of $20.08 per Warner share, based on Actavis' closing share price (NYSE:ACT) of $125.50 on May 17. That is a 43 percent premium, compared to Warner's average trading price (NASDAQ:WCRX) of $14 for the 30-day trading period that ended May 9 (the day before Warner disclosed it had begun talks with Actavis), and a 34 per cent premium to the Warner closing share price on May 9 of $15.01.

Based on the closing prices of both firms on May 9 ($106.81 for Actavis and $15.01 for Warner) the value per Warner share would be $17.09, a premium of 14 percent over the Warner closing price. Warner stockholders would own about 23 percent of the "new" Actavis. Warner's $3.5 billion in debt would belong to Parsippany, N.J.-based Actavis.

Actavis came about through a merger of a U.S. and an overseas firm, too. In April 2012, Watson Pharmaceuticals Inc. merged with Actavis Group, of Zug, Switzerland, for an up-front payment of €4.25 billion (then US$5.6 billion). This is where biosimilars enter: In 2011, Watson had joined forces with Thousand Oaks, Calif.-based Amgen Inc. to develop biosimilars of several specific oncology antibodies for the global market. (See BioWorld Today, Dec. 21, 2011.)

"A successful biotech pioneer, Amgen created many of the biologics that are serving as reference drugs for biosimilars that have already been approved and that are in the works," noted the latest BioWorld Data report, The Biosimilars Game: A Scorecard for Opportunities, Threats, and Clinical Strategies.

With the buyout of Warner, if it goes through, Actavis gains even more oomph in the space – but the tax advantage is a key element, wrote Leerink Swann analyst Jason Gerberry in a research report. "While Warner brands certainly aren't 'growthy,' and a few key brands face generic risk, we believe Actavis met an important strategic objective of lowering its tax rate by purchasing an inexpensive asset with higher multiple stock," in Gerberry's view.

Disclosure of the deal comes on the heels of attempt by Actavis to have itself taken over by Valeant Pharmaceuticals International Inc., of Laval, Quebec, and Actavis made known about a week ago that talks had begun with Warner.

Most of Actavis' sales, at this point, derive from generic therapies, including major revenue generators such as those for New York-based Pfizer Inc.'s cholesterol-buster Lipitor (atorvastatin), and for Concerta (methylphenidate hydrochloride), the compound for attention-deficit and hyperactivity disorder from Johnson & Johnson, of New Brunswick, N.J.

Analyst Shibani Malhotra, of RBC Capital Markets, seemed even more upbeat than Leerink's Gerberry, in a research report.

"We believe the deal looks fair and leaves upside to both Warner and Actavis shareholders," Malhotra wrote. "We expect management has likely been conservative on synergies and note that these do not include any upside from interest expense, revenue or manufacturing synergies, all of which could be meaningful."

RBC's "fundamental value for Warner is $20, which is in line with what Actavis is paying," he pointed out, and Actavis shares have jumped by 27 percent since word surfaced in April about the potential Valeant deal.

Actavis' shares closed Monday at $127.15, up $1.65, while Warner's ended at $19.60, up 39 cents.