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Actavis (ACT)' Acquisition Of Forest Laboratories, Inc. (FRX) Will Expand Its Branded Drug Portfolio And Facilitate Long-Term Growth, Says Globaldata Analyst

2/20/2014 9:22:46 AM

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LONDON, UK (GlobalData), 20 February 2014 - Actavis’ recent acquisition of Forest Laboratories highlights the company’s desire to increase its branded drug portfolio alongside its generic drug business, which could ultimately provide a strong platform for the firm to achieve long-term growth in the innovative pharmaceutical space, says an analyst with research and consulting firm GlobalData.

Actavis, one of the world’s leading generic drug manufacturers, has agreed to buy Forest Laboratories for $25 billion. According to Joshua Owide, GlobalData’s Director of Healthcare Industry Dynamics, this is the largest-witnessed deal in the pharma industry for a number of years, exceeding the $20 billion paid by Sanofi for Genzyme in 2011.

As recently as December 2013, Forest was rumored to be an acquisition target for UK pharma giant AstraZeneca, but the $15 billion valuation fell short of the expectations of Forest’s major shareholders. By the time Actavis’ acquisition announcement was made, Forest’s stock market valuation reached around $20 billion.

Owide says: “This is still well below the price offered by Actavis and indicates trends currently seen across the entire pharmaceutical industry, whereby the demand for assets often exceeds the perceived value of those assets, leading to premium deal prices being commanded by shareholders.”

GlobalData believes that Actavis can benefit financially as a result of this integration, through means including economies of scale and tax savings. This is due to Actavis being headquartered in Ireland, where tax rates are significantly lower than in the US, which is home to Forest. The tax savings alone could be worth as much as $4 billion, which could justify the lofty price of the deal.

Actavis will also seize control of a number of Forest Laboratories’ emerging therapeutics, which GlobalData forecasts will become successful over the coming years. Among these drugs is Linzess (linaclotide), recently launched for irritable bowel syndrome, which could reach sales of more than $1 billion by 2017.

Additionally, Forest’s therapies Tudorza (aclidinium bromide inhalation powder) and Daliresp (roflumilast) have both gained approval for obstructive pulmonary disease, and are forecast to achieve combined sales of over $1 billion by 2018.

“A large proportion of Forest’s $25 billion valuation is attributed to the future earnings of its emerging portfolio, a scenario which carries both significant risk and reward to Actavis,” Owide concludes.

- Comments provided by Joshua Owide, GlobalData’s Director of Healthcare Industry Dynamics.

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