There have been several noteworthy developments in the drug space recently, which will likely have a material impact on the companies in this sector and the markets they serve. Companies mentioned in this review include Actavis plc. (ACT), Forest Laboratories (FRX), Pfizer Inc. (PFE - Free Pfizer Stock Report), and Merck & Co. (MRK - Free Merck Stock Report).
Actavis to Buy Forrest
On February 18th, Actavis made by far the biggest drug splash of the year when it announced that it had entered into a definitive agreement to acquire Forest Labs for a whopping $25 billion in cash and equity. Under the terms of the deal, Forest shareholders would receive $89.48 a share for each unit held ($26.04 in cash and 0.3306 Actavis shares), which represented a 25% premium over Forest’s pre-announcement closing price, and a 31% premium over its 10-day volume weighted average. If successfully completed, the transaction would combine two of the world’s fastest-growing specialty pharmaceutical companies, with annual revenues expected to top $15 billion by 2015. Its portfolio would consist of a wide array of generic and branded products, highlighted by strong franchises in key areas such as the central nervous system, women’s health, and gastroenterology. Moreover, the pipeline would be well-stocked with a number of promising prospects which include treatments for cardiovascular disease, schizophrenia, and COPD. According to management, the deal is expected to generate free cash flow of more than $4 billion in 2015, and some $1 billion in operating and tax synergies three years following the closing, which is currently scheduled for mid-2014 pending shareholder approval and other customary conditions. Shares of Forest’s stock shot up more than 30% on the news.
Pfizer Vaccine Passes Post-Approval Test
On February 24th, the New York-based drug giant announced that Prevenar 13, a drug widely used to prevent infection in children, met its primary endpoint in a post-approval study consisting of 85,000 individuals aged 65 and older. The clinical trial, referred to as Capita, showed that Prevenar 13 prevented community-acquired pneumonia in the elderly subjects. The study was required by the FDA under conditions set forth in a prior approval (for adults 50 and older in December, 2011) stating that Pfizer would conduct post-clearance studies to prove the shot protects against pneumonia. The vaccine’s extended use in elderly adults is expected to add $1 billion in annual sales, which should push Prevenar above the coveted $5 billion-a-year mark. Pfizer plans to share detailed results from the trial at conference in India on March 12th.
Merck Shopping Healthcare Business
It has been reported that a handful of companies including Novartis, Bayer AG, and Proctor & Gamble have expressed interest in buying Merck’s consumer healthcare business. Although exact details have not been disclosed, people familiar with the reports say that Merck began meeting with potential buyers after receiving preliminary offers earlier this month, and is apparently seeking a second round of offers in late-March. Merck’s healthcare unit, which sells popular products like Coppertone sunscreen, Claritin for allergies, and Dr. Scholl’s foot care, is expected to fetch as much as $10 billion-$12 billion in a potential sale. Despite its large size and various product lines, Merck has reportedly said it would prefer to sell the business as a whole and not in parts. However, given the tight lips of the companies said to be involved, much of this is still up for speculation.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.