Forest Agrees to Acquire Aptalis for $2.9 Billion in Cash

Forest Laboratories Inc., maker of the Alzheimer’s drug Namenda, will buy Aptalis Pharma for $2.9 billion, adding treatments for gastrointestinal ailments and cystic fibrosis. Forest rose the most in at least 34 years.

Aptalis, a closely held company whose shareholders include TPG Capital, generated $688 million in sales in the 12 months ended in September, New York-based Forest said today in a statement. TPG, a private-equity firm led by David Bonderman, will reap about a 200 percent gain on the sale, a person familiar with the matter said.

The acquisition is the first at Forest for Chief Executive Officer Brent Saunders, who took over Oct. 1. The company, with $3.09 billion in sales in the last fiscal year, is seeking new products after the loss of patent protection for its former top-seller, the antidepressant Lexapro. The drug’s sales fell to $194.9 million in the 12 months ended in March, from $2.13 billion a year earlier.

“Investors will likely see this as the new CEO executing his ‘change agent’ mandate,” David Maris, an analyst at BMO Capital Markets, said in a note to clients. “This deal solves more problems than it creates in the intermediate term, and as such, should result in significantly higher estimates and a boost to the shares.”

Forest jumped 18 percent to $69.30 at the close of New York trading, for its biggest one-day advance since at least July 1980. The shares has increased 89 percent in the last 12 months.

Diversifying Base

“I really like this deal, even though it’s bigger than I would have expected,” said Marshall Gordon, an investor at ClearBridge Investments LLC, the fourth-largest Forest shareholder according to company filings. “It shows they’re diversifying their earnings base and there’s a tremendous amount of leverage.”

The pharmaceutical industry has been struggling to replace revenue lost to generic-drug competitors, as patents expired in recent years for medicines including Pfizer Inc.’s Lipitor and Bristol-Myers Squibb Co.’s Singulair. More than $60 billion was lost to generics from 2010 to 2012, according to research by analysts at Bloomberg Industries. Another $50 billion may be lost over the next five years.

Deals Sought

The company isn’t done looking for acquisitions, Saunders said in an interview on Bloomberg Television. Forest also is interested in gaining drug-marketing rights from other pharmaceutical companies. Forest last month said it would pay at least $240 million for U.S. rights to the schizophrenia treatment Saphris from a subsidiary of Merck & Co.

“Clearly we have a mission to continue to build out our business in the key areas,” Saunders said in the interview. “We have the capacity and capability to continue to go out and fill in those franchises.”

The Aptalis acquisition is expected to add about 78 cents a share to Forest’s profit in the 2015 fiscal year, Saunders said in the company statement. The all-cash deal is expected to close in the first half of this year.

“Aptalis is an excellent strategic and financial fit” with “strong product offerings in two therapeutic franchises that are complementary to Forest,” Saunders said in the statement. The deal “helps diversify Forest while advancing our strategy to create blockbuster therapeutic areas.”

TPG Investment

TPG in November 2007 led a $1.3 billion leveraged buyout of Aptalis, then known as Axcan Pharma Inc., investing $335 million of equity, according to a filing. It injected an additional $100 million when Aptalis, based in Bridgewater, New Jersey, acquired Eurand NV for about $590 million in 2011.

The profit from today’s sale includes TPG’s share of a $399.5 million dividend Aptalis paid stockholders in October.

TPG declined to comment on the sale or its profit through spokeswoman Lisa Baker of Owen Blicksilver Public Relations.

Saunders took over as Forest’s CEO following proxy battles between the company and Carl Icahn, the billionaire investor who is now the drugmaker’s second-largest shareholder. Icahn gained a board seat in 2012.

“Activism proves to be working well” at Forest, Icahn said in a post today on Twitter.

Debevoise & Plimpton LLP and Cleary Gottlieb Steen & Hamilton LLP served as Forest’s legal counsel. TPG and Aptalis were advised by Ropes & Gray LLP. Morgan Stanley acted as financial adviser to Forest. JPMorgan Chase & Co. acted as financial advisers to Aptalis.

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