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Oceania- bound and generic-focused
PARSIPPANY, N.J.—Watson Pharmaceuticals Inc. just became a very big thing in the Oceania region of the world by acquiring Ascent Pharmahealth Ltd., the Australia and Southeast Asia generic pharmaceutical business of Strides Arcolab Ltd., for about $393 million.
Aside from reportedly being immediately accretive to 2012 non-GAAP earnings, this transaction makes Watson the fifth-largest generic pharmaceutical company in Australia based on revenue, and the second-largest in terms of total molecules with the addition of Watson's assets to those of Ascent. In addition, Watson becomes the largest generics company in Singapore and gains an established commercial base in Malaysia, Hong Kong, Vietnam and Thailand.
Ascent boasts a 14-percent market share in Australia, with a broad portfolio of generics, brands, branded-generic, over-the-counter (OTC), dermatology and skin-care products. In the Southeast Asia market, Ascent markets branded-generics and OTC products, and is supported by a sales force of approximately 45 representatives. All told, Ascent employs some 300 people in Australia and Southeast Asia.
The acquisition is a coup for Watson in many respects, according to Siggi Olafsson, executive vice president of global generics for Watson—not just for the reasons noted above, but also for the fact that the top five generic companies in Australia make up 98 percent of the market, "so it is a very hard market to break into," he notes.
"The growth of the Australian generic market is better than in most of the Western market—it's expected to grow around eight percent over the next five years," Olafsson adds. He describes the Southeast Asia market as a "very interesting market for us," adding, "What we have is a good base in quite a few markets which we can take and expand further. We have talked about Southeast Asia being a focus point for us, and this transaction drives that home."
"We are committed to expanding our international commercial operations into geographies where we can capitalize on our existing assets and participate in growing and emerging markets," said Paul Bisaro, Watson's president and CEO, in the news release about the acquisition. "This acquisition immediately establishes Watson among the leaders in the AU$12 billion Australian pharmaceutical market … This acquisition complements our existing generic development and marketing capabilities in the important Australia market, and catapults us to a top-five position that would have taken considerable time and investment to build organically. It also provides us with a leadership position in Southeast Asia, a region with more than 600 million consumers and overall annual generic sales of approximately AU$4 billion a year."
Bisaro adds that the acquisition of Ascent also gives Watson a successful commercial structure in both Australia and Southeast Asia, noting that, "We will retain the proven sales and marketing teams that have driven Ascent's growth, we will have a larger portfolio of products and gain a broader pipeline of products to support continued growth."
"Australia is a very interesting market for us," Olafsson said in a presentation to investors the day after the announcement. "We have assets in Australia. We own Willow, which focuses on injectables … but we also own a company called Spirit, which focuses on developing products for the Australian market—they have licensed out many of their products. But within these two companies, we have a significant portfolio that we want to let work for us going forward. We really want to monetize the products and M&As we have in Australia, and Ascent is a fantastic base to take it forward."
In acquiring Ascent, Watson purchased the 94 percent of shares held by Strides and the other 6 percent owned by Dennis Bastas, CEO of Ascent.
"The sale of Ascent is a value-enhancing and forward-looking initiative for Strides," said Arun Kumar, executive vice chairman and group CEO of Bangalore, India- based Strides Arcolab, in an official statement. "We have been clear about our intention to focus on our highly attractive steriles segment, which we expect to be our growth engine going forward. The transaction further facilitates the execution of this strategy and unlocks significant value for the group. Furthermore, the proceeds from the transaction considerably strengthen our balance sheet."
Zacks Investment Research was upbeat about the deal, saying in an investor note, "We are very pleased with this development, as Watson Pharma will now gain a foothold in Malaysia, Hong Kong, Vietnam and Thailand. Moreover, Ascent Pharmahealth has a 14-percent market share in the dermatology and skin care market of Australia. This will help diversify Watson Pharma's portfolio."
Helping make the acquisition even sweeter for Zacks was that it followed a collaboration agreement signed the previous month between Watson Pharma and Amgen Inc. for the worldwide development and commercialization of oncology antibody biosimilar medicines—a deal Zacks anticipates "will help expand Watson Pharma's biosimilar and generic portfolio, which will help drive the company's long-term growth."
"We have a very solid, balanced business model and we've been pursuing this business model for some time and will continue to pursue this business model for the foreseeable future," Bisaro told investors as he ran down Watson's overall successes in 2011 and 2012 for investors the day after the acquisition was announced. "It includes a very substantial generics portfolio and platform. Generics account for about 75 percent of our revenues right now. We're the third largest in the U.S. right now; probably fourth largest worldwide. We have operations in key countries and just added to that with the announcement of the Ascent acquisition."
"Combining the product portfolios and commercial infrastructures of Ascent and Watson creates a substantial generics business in the region and provides Ascent with a number of new growth opportunities," Bisaro noted in the announcement of the acquisition. "We believe that Ascent, its partners, customer and employees across all of its markets will benefit from the continued development under its new owners."