Forest Laboratories Inc. (FRX) fell the most in 10 months over investor concerns that its $1.2 billion purchase of Clinical Data Inc. won’t add to earnings in time to offset losses from patent expirations on Forest’s biggest drug.
Forest agreed to pay $30 a share in cash, a 12 percent discount from Clinical Data’s last closing price, to gain the new antidepressant Viibryd, the companies said today in a statement. New York-based Forest will pay an additional $6 a share if the drug meets certain sales goals and said it expects the purchase to add to earnings no earlier than fiscal 2014.
Forest has been looking to license new drugs to replace Lexapro, an antidepressant that accounts for 56 percent of the company’s sales and is set to lose patent protection next year. Forest’s goal of leveraging its existing sales force to turn Viibryd into a product with more than $1 billion in annual sales isn’t realistic in a market dominated by generic competition, said David Amsellem, an analyst at Piper Jaffray & Co.
“As a general rule, I think the days of the blockbuster antidepressant are largely behind us,” Amsellem said today in a telephone interview from New York. He expects peak annual sales of Viibryd will be $500 million to $700 million and said the drug will require significant promotional spending.
Lexapro, approved in 2002, had sales of $2.3 billion in Forest’s fiscal year ended March 31.
Forest fell $1.43, or 4.2 percent, to $32.90 at 4 p.m. in New York Stock Exchange composite trading. It was the shares’ biggest percentage decline since April 8. Clinical Data fell $2.69, or 7.9 percent, to $31.21 in Nasdaq trading. The Newton, Massachusetts-based company had gained 19 percent last week on speculation that a deal was in the works.
Valued at $1.2 billion
The companies said the acquisition is valued at $1.2 billion net of cash acquired. Clinical Data had $45.9 million in cash and current assets at the end of last year, according to data compiled by Bloomberg.
The Food and Drug Administration cleared Viibryd on Jan. 21 after studies showed that it may have fewer side effects involving sexual function than older treatments. About 6.7 percent of U.S. adults have had major depression in the past 12 months, a third of whom had severe cases, according to the National Institute of Mental Health. Viibryd is the first new type of medicine to treat depression in more than a decade.
Forest typically licenses drugs instead of buying companies outright. The drugmaker paid $480 million for closely held biotechnology company Cerexa Inc. in Jan. 2007. Forest had $1.55 billion in cash and $2.19 billion in short term investments at the end of last year.
“For them to lay out this kind of money upfront is uncharacteristic,” Gary Nachman, an analyst at Susquehanna International Group in New York, said today in a telephone interview. “They have a lot of cash left and I expect them to do more deals. I personally would have liked to see them do something that’s more accretive within the next few years.”
Frank Murdolo, a spokesman for Forest, didn’t immediately return a voice-mail message seeking comment.
There have been 992 acquisitions announced for U.S. pharmaceutical companies in the past five years, with an average size of $473 million and a typical premium of 48 percent, according to Bloomberg data. The largest was New York-based Pfizer Inc.’s 2009 purchase of Wyeth for $68 billion.
Morgan Stanley provided financial advice to Forest and Covington & Burling LLP is acting as the company’s legal counsel in the Clinical Data purchase. J.P. Morgan Securities is Clinical Data’s financial adviser and Cooley LLP is the company’s legal counsel.
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