How Acquisitions Mean Growth for These Generic Drug Makers
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The global generic drug industry will reach $169 billion in 2014 with a compounded annual growth rate of 15% over five years. The patent expiration of branded drugs opens the door for generic versions, fueling the growth of the generic drug industry. Additionally, the companies in this industry are adopting strategies to maintain growth momentum and investor confidence, including focusing on emerging markets and acquisitions.
This article analyzes three companies from the industry that have growth opportunities through acquisition and new generic drug versions. Let’s discuss these companies in detail.
Acquisition and new launch will drive growth
In May 2013, Actavis (NYSE: ACT) announced its acquisition of Warner Chilcott (NASDAQ: WCRX) for $8.5 billion. Warner Chilcott is a speciality pharmaceutical company with a therapeutic footprint in women’s health, gastroenterology, dermatology, and urology. Warner has an important position in women's health with key products -- Lo Loestrin, Loestrin 24, Estrace, and Atlevia. Warner’s product pipeline also includes its top-selling drug Asacol, generating revenue of $793 million in 2012 and contributing around 31% in total revenue.
Actavis is diversifying from its core generic business, and the acquisition will help the company expand its footprint in women’s health and gastroenterology markets. Post-acquisition, the new entity will become the third largest in the U.S. speciality pharmaceutical market with combined annual revenue of $11 billion. The new entity will remain named Actavis and Warner Chilcott shareholders will hold a 23% stake.
The new Actavis will base its operations in Warner’s current location in Ireland. Operating from Ireland will the reduce tax rate for the new entity, which will be 17% in 2014 compared to Actavis’ current rate of 28%. The acquisition will result in operational and tax synergies of $400 million, which will boost its non-GAAP earnings by more than 30% in fiscal year 2014. This acquisition will be complete by end of this year and will generate around $3 billion in annual revenue in 2014.
On the other side, the settlement of patent litigation will drive the company's earnings per share in the coming years.
In April 2013, the company reached a settlement agreement with Shire regarding its drug, Intuniv. This drug treats Attention Deficit Hyperactivity Disorder, or ADHD. With this settlement, Activas plans to launch its generic version of Intuniv in 2014.
It also reached a settlement with Purdue Pharma resolving patent litigation of its generic version of OxyContin, a strong painkiller. Under this settlement, the company will market its generic version known as oxycodone extended- release tablets in January 2014. The agreement with Purdue will contribute around $100 million in combined gross profit in 2014 and 2015. Both these settlements will drive 2014 earnings per share to $12.80 from the current expected 2013 earnings per share of $8.30.
Agila acquisition and fenofibrate new launch
In February 2013, Mylan (NASDAQ: MYL) announced its acquisition of Agila Specialities, a manufacturer and marketer of high quality generic injectable products for $1.6 billion. The acquisition will strengthen the company’s global injectable platform and will drive its business to new levels. With this acquisition, the company will have more than 700 injectable products on the market, addressing around 70% of regulated injectable market demand.
The acquisition will provide the pipeline of 350 injectable drugs currently under development. It will also help Mylan expand its footprint in Brazil’s emerging market. Agila has a strong presence in Brazil as it receives 25% of its revenue from this market. The transaction will be complete in the fourth quarter of 2013. The acquisition will have an immediate effect on the company’s revenue and earnings, doubling the company’s injectable business in first full year. The Agila acquisition will generate revenue of $350 million in 2014 and $438 million in 2015, with earnings per share contribution of $0.14 in 2014 and $0.24 in 2015.
On May 17, 2013, the company launched a new generic version of the cholesterol drug Tricor, or fenofibrate tablets, in 48 mg and 145 mg strengths. With these new launches, the company now has eight strengths of fenofibrate tablets available. Mylan’s new launch will help it to compete with Lupin, another seller of generic versions of Tricor. The launch will result in a decline of Lupin's market share of $1.2 billion. Mylan will emerge as the number two player in the market with these launches. The two new strengths will generate annual revenue of $130 million within six to nine months post-launch, and will contribute around $0.15 per share.
These generic drug companies will benefit from acquisitions and new product launches.
Actavis’s acquisition of Warner Chilcott will provide operational and tax synergies, and it will diversify its business to women’s health and gastroenterology markets. The new generic version of Intuniv and OxyContin will also drive the company’s earnings per share. Mylan’s acquisition of Agila will strengthen its global injectable platform, and the new launch of fenofibrate strengths will enhance its revenue and market position.
I recommend a buy for all these companies.
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