WCRX Buys US Rights to Enablex – Analyst Blog

Warner Chilcott plc (WCRX) recently announced the termination of its agreement with Novartis AG (NVS) for the co-promotion of Enablex, a treatment for overactive bladder, in the US. Warner Chilcott agreed to purchase the US rights of the drug from Novartis for $400 million cash. The deal, which is scheduled to close by the end of October, is subject to regulatory clearance.

 

Along with the $400 million upfront payment, Warner Chilcott is also liable to make future milestone payments of $20 million to Novartis. As per the terms of the agreement, Novartis retained all ex-US rights to Enablex.

 

Warner Chilcott expects this transaction to be modestly accretive to 2010 adjusted cash net income and adjusted cash net income per share.

 

Earlier, under its co-promotion agreement with Novartis, Warner Chilcott shared with Novartis the costs for the development and promotion of the drug in the US. Warner Chilcott was entitled to receive a percentage of US Enablex sales generated by Novartis. For each fiscal year, Warner Chilcott was in turn required to spend a fixed amount on the advertising, promotion and selling of the drug.

 

In a related development, Warner Chilcott announced the private placement of $500 million worth of 7¾% senior notes due 2018. The offering of these senior notes is expected to close on or about September 29, and are a part of the same series of 7¾% senior notes due 2018 issued on August 20.

 

The proceeds from this offering will be used to finance the $400 million upfront payment to be made to Novartis for the US rights of Enablex and for general corporate purposes.

 

We currently have a Neutral recommendation on Warner Chilcott, which is supported by a Zacks #3 Rank (short-term Hold rating). We believe that the acquisition of the US rights of Enablex will boost the company’s urology segment.

 

Although the company will face a number of patent expiries in the coming years (including Actonel in December 2010 in Europe and in 2014 in the US, Doryx in mid 2011, and Asacol in 2013), we believe Warner Chilcott’s diversified product base will help withstand the generic threat.