Actavis Weighing up Sale

October 20, 2008 Actavis weighing up sale

Lisa Urquhart

Whether or not Actavis is in a hurry to sell itself is debateable. Recent reports in the press have claimed that Thor Bjorgolfsson, owner of Novator, the investment vehicle that owns 80% of the Icelandic generic firm, is looking to get shot of the company after suffering heavy losses following the collapse of Icelandic bank, Landsbanki, which he had large investments in.

What is certain is that Merrill Lynch, which was hired several months ago, is working on something. A desire to "explore strategic options" could see the company merged, or taken over. What is almost an impossibility is an IPO of the company, which was taken private in 2007. While a flotation is off the cards, the global financial climate could also impact any sales arrangements due to the fact that Actavis has a large debt burden thought to be in the region of $4bn, which might deter all but the richest of suitors, or cause others to wait a while.

Size matters

Even if its debt levels may make some balk at making an offer, what it does have in its favour, thanks to its aggressive acquisition strategy, is a firm foothold in Eastern Europe, one of the growth areas for generics.

Over the last six years the company has completed 16 takeovers, including paying $810m for Alpharma’s US and International generics businesses in 2005 and more recently buying a 90% stake in Zhejiang Chiral Medicine in April of this year, with the aim of reducing its API costs and extending its reach in the region. The outward focus also means the economic meltdown in Iceland should not hurt the company too much as only 1% of revenues are generated in the country.

It is this desire for expansion which, according to estimates from EvaluatePharma, mean Actavis is set to record compound annual growth of 10% over the next seven years for its unbranded generic products, pushing up 2007 sales of $1.98bn to $3.82bn by 2014. But in the highly fragmented world of generics this progress, while making it the fourth-biggest generic company by sales (if Teva-Barr is excluded), only increases its global market share from 5% to 5.4%. WW Unbranded Generic Sales

Sales ($m) Market Share Market Rank

2007 2014 CAGR 2007 2014 2007 2014

Teva-Barr 8,614 15,175 8% 22.4% 21.4% 1 1

Teva Pharmaceutical Industries 6,718 12,358 9% 17.4% 17.4% - -

Novartis 6,429 10,566 7% 16.7% 14.9% 2 2

Mylan 1,899 6,601 19% 4.9% 9.3% 4 3

Actavis 1,935 3,823 10% 5.0% 5.4% 3 4

Ranbaxy Laboratories 1,504 2,961 10% 3.9% 4.2% 8 5

Barr Pharmaceuticals 1,896 2,816 6% 4.9% 4.0% - -

Hospira 1,665 2,696 7% 4.3% 3.8% 5 6

STADA Arzneimittel 1,583 2,613 7% 4.1% 3.7% 6 7

Krka 980 2,516 14% 2.5% 3.5% 11 8

Apotex 1,132 2,228 10% 2.9% 3.1% 10 9

Dr. Reddy's Laboratories 823 2,033 14% 2.1% 2.9% 13 10

Cipla 874 1,804 11% 2.3% 2.5% 12 11

Sun Pharmaceutical Industries 775 1,802 13% 2.0% 2.5% 14 12

Watson Pharmaceuticals 1,409 1,712 3% 3.7% 2.4% 9 13

Glenmark Pharmaceuticals 244 1,453 29% 0.6% 2.0% 29 15

As to who might make a bid for Actavis is difficult to answer. Sanofi-Aventis, just about to capture Zentiva, might still want to expand its generic reach, but the high-looking $8bn price tag that some have put on the company could be a deterrent. Similarly, fellow generic company STADA Arzneimittel might struggle to find that kind of money following its recent problems with intense competition in its German home market that in August caused it to issue a profits warning.

If money is an issue then it is more likely that a cash rich, large pharmaceutical company facing patent expiries, wanting to diversify its business away from risky and expensive drug development, might be interested. The table below shows the number of companies that have the most cash in the sector. Cash & Cash Equivalents - Year End 2008 ($m)

Pfizer 27,961

Roche 21,295

Wyeth 14,012

Merck & Co 13,047

GlaxoSmithKline 12,957

Amgen 12,231

Johnson & Johnson 11,569

Takeda 9,375

Novartis 8,428

Sanofi-Aventis 6,661

Bristol-Myers Squibb 6,156

Genentech 5,813

Bayer AG 5,731

Eli Lilly 5,464

While Pfizer is leading the pack with the largest cash pile and one of the biggest patent expiry issues, the US company has historically shown little or no interest in generics. Alternatively, GlaxoSmithKline with its outspoken desire to get into developing markets might, following its purchase last week of Bristol-Myers Squibb's Egyptian generics business for $210m, might be a contender. Novartis, which already has a large generic business in the shape of Sandoz could also consider making a move to help it to remain one of the main players in the wake of the coming tie-up between Teva and Barr.