Forest Labs Soars on Aptalis Deal - Analyst Blog


Forest Laboratories, Inc. ( FRX ) announced its intention to acquire U.S. based privately-held Aptalis for $2.9 billion in cash. The acquisition, which is expected to be immediately accretive, is slated to go through in the first half of 2014.

What Will Forest Gain?

With this acquisition, Forest Labs will be able to strengthen its position in the gastrointestinal (GI) market in the U.S. and Canada and the cystic fibrosis (CF) market in Europe. Aptalis' products will complement existing products in Forest Labs' portfolio specifically Linzess in the GI portfolio (U.S.) and ColoBreathe in the CF franchise in Europe.

Aptalis delivered sales of $688 million in FY13 (ended Sep 2013). The company's top three products in the U.S. - Canasa, Carafate, and Zenpep - contributed 60% to total sales. Meanwhile, 15% of total sales came from international markets.

Acquisition to be Immediately Accretive

In addition to boosting FY15 revenues by almost $700 million, the acquisition will also allow Forest Labs to realize pre-tax cost synergies worth $125 million by FY16. About $75 million of these synergies are expected to be achieved in FY15. Overall, this acquisition will be a good strategic and financial fit for Forest Labs and is expected to boost FY15 earnings by about 78 cents.

Our Take

We are positive on Forest Labs' intention to acquire Aptalis. The deal looks attractive especially keeping in mind the fact that Forest Labs' Alzheimer drug, Namenda, will be facing generic competition from 2015. The acquisition will also give Forest Labs the opportunity to build its presence in Europe and strengthen its GI and CF portfolios.

The Aptalis deal is the second accretive agreement to be announced by Forest Labs over the past few weeks. In early Dec 2013, Forest Labs had signed an agreement with Merck ( MRK ) for the acquisition of exclusive rights to Saphris in the U.S. Saphris, approved for the treatment of schizophrenia and acute bipolar mania in adults, generated sales of $150 million for Merck during the 12 months ended Sep 2013.

Investors have reacted positively to the Aptalis deal and sent the share price up almost 18%.

Forest Labs is a Zacks Rank #1 (Strong Buy) stock. Some other stocks worth considering include Sucampo Pharmaceuticals, Inc. ( SCMP ) and WuXi PharmaTech (Cayman) Inc. ( WX ). Both are Zacks Rank #1 stocks.

FOREST LABS A (FRX): Free Stock Analysis Report

MERCK & CO INC (MRK): Free Stock Analysis Report

SUCAMPO PHARMAC (SCMP): Free Stock Analysis Report

WUXI PHARMATECH (WX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CF , FRX , MRK , SCMP , WX

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