Consolidation in the generic pharmaceuticals sector continues apace, with Watson Pharmaceuticals and fellow US firm Andrx Corp the latest to announce a merger.
The move comes at a time when US generics companies are feeling the pinch of increased competition and pricing pressure, driving companies to combine their activities and combine their product offerings. A bigger portfolio tends to be an advantage in generics, because healthcare payers are increasingly trying to do deals with single providers of pharmaceuticals to cut costs.
Watson said yesterday it plans to acquire Andrx in an all-cash transaction valued at $25.00 per share, or a total price of approximately $1.9 billion. The deal would create a combined company with sales of around $2.8 billion in 2007, based on historical revenues, which would make it the third-largest generic drug manufacturer in the USA behind Teva and Mylan Laboratories.
The merger would also likely reduce the possibility that Watson and Andrx would become takeover targets for non-US companies, particularly Indian generic companies which have been buying up firms in both the USA and Europe in order to expand their global presence.
The merged company would have a product pipeline of 60 Abbreviated New Drug Applications (ANDAs) filed for new products in the USA, and would also allow Watson to tap into Andrx’ expertise in formulating difficult-to-replicate products and developing drug delivery technologies that can help differentiate its products from ‘commodity’ generics, seen as an important strategy in the current competitive environment.
Andrx also contributes a comprehensive distribution network, which Watson said would be operated as a separate, independent division.
"Our acquisition of Andrx significantly supports our long-term goal of expanding our existing product portfolio and pipeline," Allen Chao, Watson’s chairman and chief executive, said in a statement.
But the merger announcement comes at a difficult time for both companies. Watson has been losing market share in the USA and needs to expand its portfolio, while Andrx is under the cloud of an FDA investigation into its manufacturing plant in Davie, Florida.
The transaction is expected to complete within six months.