Actavis-Forest Labs merger will have a ripple effect among generic manufacturers

$25-billion merger creates a specialty company with a large generic base, and could presage more merger realignments

The No. 1 topic of conversation at this week’s Generic Pharmaceutical Assn.’s annual meeting has to be the Actavis-Forest Labs merger, announced on Feb. 18. The $25-billion, cash-and-stock deal will create a Big Pharma force with a market cap over $50 billion and annual revenues of $15 billion, according to press reports. Enthusiasm for the deal was widespread; the stock price of both companies rose after the announcement. And the involvement of activist shareholder Carl Icahn—who stands to clear $1.7 billion on his $1-billion investment in Forest Labs—is perhaps why the proposed merger quickly drew the interest of multiple shareholder-rights law firms looking for a better deal for Forest investors.

Although the deal is led by the No. 3 generic manufacturer in the US, Actavis’ press announcement focused almost exclusively on specialty pharmaceuticals. (Forest, which makes both branded and specialty products, had just completed a $1.2-billion acquisition of Aptalis in January.) “In five short years, my management team has transformed Watson, and now Actavis, from a US generics company to a leader on the global specialty pharmaceutical stage,” stated Paul Bisaro, chairman of Actavis, adding that “Brent [Saunders, chairman of Forest] and his team, in a short period, have made dramatic progress in rejuvenating Forest into a leader in North American brands.” Bisaro will be CEO of the combined company, and Saunders a board member.

Actavis, which was Watson Pharmaceuticals until its acquisition of Actavis Group in 2012, has been on an acquisitions tear, buying Warner Chilcott last fall, Belgium-based Uteron Pharma in January 2013, and several generics makers around the world. It has spent almost $15 billion in the past two years, according to Bloomberg News.

Commentary around the Actavis move creates speculation that Mylan (which had made a bid for Actavis a year ago, but was rebuffed) would buy—or be bought. Valeant Pharmaceuticals—another blend of generic and specialty products, could be looking to make new acquisitions, and perhaps to counter Actavis’ bid for Forest. With major acquisitions and realignments among US and European wholesalers--the main conduit for generic drugmakers to get their products to market--the motivation for those manufacturers to get bigger themselves seems to be a driving force reshaping the industry.