Warner Chilcott plc (WCRX) recently announced that it has acquired the US rights to the overactive bladder treatment, Enablex from Novartis AG (NVS) for $400 million. This acquisition resulted in the termination of the co-promotion agreement between Warner Chilcott and Novartis for Enablex.
Warner Chilcott made a $400 million upfront payment to Novartis from the proceeds of its recently announced private placement of $500 million worth of 7¾% senior notes due in 2018.
Along with the $400 million upfront payment, Warner Chilcott is also liable to make future milestone payments of $20 million to Novartis. Per the terms of the agreement, Warner Chilcott completely took over the sales and marketing activities of Enablex in the US, and expects to assume manufacturing control within three years. Novartis retains all ex-US rights to Enablex.
When the deal was first announced in September, Warner Chilcott had said that it 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, Warner Chilcott shared the development and promotion costs for the drug in the US with Novartis. 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 advertising, promotion and selling of the drug.
Neutral on Warner Chilcott
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 to Enablex will boost the company’s urology segment.
Although the company is set to 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.
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