Actavis Buying Spree Includes Alpharma In Race For Generic Top Three

Actavis plans to acquire Alpharma's generic drug business for $810 mil., marking the Reykjavik, Iceland based company's seventh acquisition of the year.

The company said it is aiming to lead the consolidation of the still fragmented generics industry with the goal of attaining the scale to compete globally.

"We are very ambitious about this," CEO Robert Wessman said during an Oct. 17 conference call announcing the deal. "We are very positive about this merger, and we strongly believe that we have a company which we will be seeing in...third place hopefully within the next few years."

With the addition of Alpharma's generic business, Actavis will more than double its revenues. The company will become the fourth largest global generics player based on sales, the company said.

Actavis and Alpharma's generics unit generated combined 2004 revenues of €1.19 bil. ($1.42 bil.), with Actavis contributing €537.6 mil. and Alpharma €652.5 mil.

Teva will be the generic industry leader upon the closing of its planned merger with Ivax. The combined sales of Teva and Ivax were $6.1 bil. in 2004, while Sandoz (with Eon and Hexal) generated 2004 revenues of $5.1 bil. Merck KGaA reported $1.9 bil. in sales.

Actavis said it anticipates sales of approximately €1.3 bil. ($1.56 bil.) in 2006.

"I believe this is a merger of strength," Wessman said. "You have all the ingredients, which would be a strong sales and marketing network, you have the development capabilities, which are outstanding, you have the low cost production and the high quality supplies, so we believe we have all the chance to be one of the leading companies in the coming future."

The acquisition will significantly strengthen Actavis' position in the U.S. market. The company entered the U.S. generic market earlier this year with the $500 mil. acquisition of privately owned Little Falls, N.J. manufacturer Amide, announced in May

In addition to Alpharma and Amide, other acquisitions made by Actavis this year include Biovena in Poland, Lotus Laboratories in India, Pharma Avalanche in the Czech Republic, Higi in Bulgaria and Keri Pharma Generics in Hungary.

With Alpharma, Actavis will now be the eighth largest generic pharmaceutical company in the U.S., Wessman stated. The company expects to file more than 30 ANDAs in 2006, positioning "the group among the leading companies in the U.S. in terms of pending ANDAs," the firm added.

The combined Actavis and Alpharma generic businesses will have more than 600 generic products on the market as well as 200 products in development and registration, Actavis reported.

Alpharma has operations in 11 countries, with a presence in Scandinavia, the Netherlands, Portugal, China and Indonesia, the firm said. Actavis, meanwhile, has a strong presence in Turkey, Bulgaria, Russia and Serbia, as well as in Northern Europe.

In addition to their complementary geographic profiles, Actavis and Alpharma have minimal overlap in their product portfolios in the U.S., Actavis said, noting that Alpharma's strong liquid product portfolio will supplement Actavis' oral solid-dose products.

The two companies expect the deal to close in the fourth quarter, pending regulatory approval.

The acquisition also will include Alpharma's Elizabeth, N.J. manufacturing facility, which FDA has cited for good manufacturing practice deviations in the past. A hold on all ANDA approvals for products produced at the plant was lifted following a September 2004 inspection.

The deal follows several recent mergers within the generics industry, as generic drug manufacturers combat growing price pressures.

"This market is consolidating," Alpharma CEO Ingrid Wiik stated during an Oct. 17 call discussing the divestiture.

"Alpharma does not see itself as a consolidator," she said. "It makes absolute sense to put the business together with another business, where it can increase its competitiveness."

Alpharma has been evaluating strategic alternatives since 2002; the company reiterated the approach most recently on Aug. 22, which sparked merger speculation (¹ (Also see "Generics Infringe On Branded Stock Growth As Investors Eye Mergers, Part D" - Pink Sheet, 10 Oct, 2005.), p. 19).

Following the divestiture, Alpharma said it will focus on its branded pharmaceuticals business, which includes the sustained-release morphine product Kadian , as well as on active pharmaceutical ingredients and animal health. The company also will retain its ParMed U.S. pharmaceutical distribution business.

The retained businesses accounted for 41% of Alpharma's revenue in the first half of the year and 64% of total company operating income before corporate and unallocated expenses.

"The new Alpharma will be a high-margin specialty pharmaceutical business with a strong market position," Wiik said.

Of the $288 mil. in revenue generated from Alpharma's U.S. generics business in the first half of the year, $118 mil. came from gabapentin capsules and tablets (Pfizer's epilepsy agent Neurontin ), which Alpharma launched in the fourth quarter.

However, Alpharma's exclusivity for gabapentin capsules and tablets expired April 6 and for tablets June 11, respectively. The company reported in August that the price of the generic had since plummeted 50%.

Alpharma expects 2006 earnings before interest, taxes, depreciation and amortization for its retained businesses to be approximately $135 mil.

The company expects to realize operating efficiencies as a result of the sale and estimates annual savings will be at least $15 mil. Alpharma will use the proceeds from the sale to repay debt and to pursue initiatives in its specialty pharmacy business, the firm added.

Alpharma will seek to acquire synergistic products for the brand business and develop line extensions, CFO Matthew Farrell said.

The company has also received clearance from FDA to proceed with a Phase II multi-dose clinical efficacy trial for an abuse-resistant, extended-release opioid. The product is being developed by Alpharma for the treatment of chronic moderate-to-severe malignant and non-malignant pain.

As a result of the generic sale Wiik has temporarily suspended her plans to retire from the company.