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Update on Actavis' Acquisitions

Zacks Equity Research

Actavis (ACT) has been quite active on the acquisition front over the past few quarters. Acquisitions form an integral part of Actavis’ expansion strategy. The company made several major acquisitions including Arrow, Specifar, Actavis Group and Warner Chilcott in the past.

Last week, the company announced that it has entered into agreements with Akorn, Inc. (AKRX) to acquire four marketed generic products (Ciloxan drops, Quixin drops, Xylocaine jelly and EMLA cream) and a pipeline candidate (Ilotycin ointment).

The addition of these products will complement Actavis’ topical and ophthalmic generic portfolio and boost its generic pipeline.

We note that Akorn recently completed the acquisition of Hi-Tech Pharmacal Co., Inc. for $640 million. However, before the acquisition was completed, the Federal Trade Commission (FTC) had stepped in, charging that the deal was anticompetitive and would lead to higher prices for consumers.  

Akorn and Hi-Tech Pharma decided to sell the rights to the above-mentioned products to Actavis to meet the FTC’s requirements.

Our Take

We are pleased with the expansion of Actavis’ generic portfolio and pipeline. While Actavis continues to work on driving generic product sales, the company is also working on strengthening its branded product portfolio. Earlier this year, Actavis had announced its intention to acquire Forest Laboratories Inc. (FRX). The acquisition will lead to the creation of a specialty company with sales of more than $15 billion per year, a well-diversified portfolio and a presence in varied geographical areas. The Forest Labs acquisition will push up Actavis’ branded products revenues to 50% of total combined revenues from the current level of 30% of the standalone company’s revenues. The Forest Labs acquisition will also bring about significant synergies and boost earnings and revenues.

Last week, both Actavis and Forest received a second request for additional information from the FTC. The acquisition is expected to go through in mid-2014.

Actavis carries a Zacks Rank #2 (Buy). Dr. Reddy's Laboratories Ltd. (RDY) also carries the same rank as Actavis.

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