Forest Laboratories, Inc. (FRX) recently announced the expiry of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 for its upcoming acquisition of Clinical Data, Inc. (CLDA).
Forest Labs had initially announced its intention to acquire Clinical Data in Feb 2011. Per the terms of the deal, Forest Labs will acquire Clinical Data for $30 per share plus a contingent value right of up to $6 per share. The contingent value consideration will be paid on the achievement of commercial milestones related to Viibryd.
Deal Gives Forest Labs Access to Viibryd
With this acquisition, Forest Labs will gain access to Clinical Data’s recently approved anti-depressant, Viibryd. Viibryd is approved for the treatment of major depressive disorder in adults.
Besides Viibryd, Forest Labs will gain access to other candidates in Clinical Data’s pipeline including phase III candidate, Stedivaze. Stedivaze is in development as a pharmacologic stress agent for radionuclide myocardial perfusion imaging (MPI). The company expects to launch this product by 2014.
Impact of the Deal
At the time of announcing the deal, Forest Labs had announced that it does not expect the deal to impact its fiscal 2011 results. However, the company expects the transaction to be earnings dilutive over the next three fiscal years.
The deal is expected to have a dilutive impact in the range of 55-65 cents per share in fiscal 2012. The deal could be accretive during fiscal 2014. Forest Labs expects to expand its sales force in support of the launch of Viibryd.
A tender offer was launched on March 8, 2011 with the offer scheduled to expire on April 4, 2011, unless extended.
Our Take
With Lexapro slated to lose exclusivity in 2012, Forest Labs has been pursuing in-licensing deals and acquisition activities to grow its pipeline and make up for the loss of revenues once generics arrive. The proposed acquisition of Clinical Data is in-line with the company’s strategy. Forest Labs is well-positioned for the commercialization of Viibryd given its strong presence in the anti-depressant market with products like Celexa and Lexapro in its portfolio. According to Forest Labs, more than 200 million prescriptions are written for major depressive disorder annually.
While we believe Viibryd is a good fit in Forest Lab’s portfolio, we remain concerned about the near-term dilutive impact of the deal. Moreover, we note that Viibryd will be entering a highly genericized market which may make it challenging for the product to gain market share.
We currently have a Neutral recommendation on Forest Labs, which is supported by a Zacks #3 Rank (short-term “Hold” rating). We believe Forest Labs will continue to seek in-licensing deals and acquisitions to grow its pipeline. The generic exposure faced by Lexapro in 2012 is a matter of major concern. Moreover, Namenda will face generic competition in early 2015 this puts another $1+ billion at risk. That puts a lot of pressure on the pipeline to come through.
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