Oceania- bound and generic-focused

PARSIPPANY, N.J.—Watson Pharmaceuticals Inc. just became avery big thing in the Oceania region of the world by acquiring AscentPharmahealth Ltd., the Australia and Southeast Asia generic pharmaceuticalbusiness 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 companyin Australia based on revenue, and the second-largest in terms of totalmolecules with the addition of Watson's assets to those of Ascent. In addition,Watson becomes the largest generics company in Singapore and gains anestablished commercial base in Malaysia, Hong Kong, Vietnam and Thailand.

Ascent boasts a 14-percent market share in Australia, with abroad portfolio of generics, brands, branded-generic, over-the-counter (OTC),dermatology and skin-care products. In the Southeast Asia market, Ascentmarkets branded-generics and OTC products, and is supported by a sales force ofapproximately 45 representatives. All told, Ascent employs some 300 people inAustralia and Southeast Asia.

The acquisition is a coup for Watson in many respects,according to Siggi Olafsson, executive vice president of global generics forWatson—not just for the reasons noted above, but also for the fact that the topfive generic companies in Australia make up 98 percent of the market, "so it isa very hard market to break into," he notes.

"The growth of the Australian generic market is better thanin most of the Western market—it's expected to grow around eight percent overthe 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 quitea few markets which we can take and expand further. We have talked aboutSoutheast Asia being a focus point for us, and this transaction drives thathome."

"We are committed to expanding our international commercialoperations into geographies where we can capitalize on our existing assets andparticipate in growing and emerging markets," said Paul Bisaro, Watson'spresident and CEO, in the news release about the acquisition. "This acquisitionimmediately establishes Watson among the leaders in the AU$12 billionAustralian pharmaceutical market … This acquisition complements our existinggeneric development and marketing capabilities in the important Australiamarket, and catapults us to a top-five position that would have takenconsiderable time and investment to build organically. It also provides us witha leadership position in Southeast Asia, a region with more than 600 millionconsumers and overall annual generic sales of approximately AU$4 billion ayear."

Bisaro adds that the acquisition of Ascent also gives Watsona successful commercial structure in both Australia and Southeast Asia, notingthat, "We will retain the proven sales and marketing teams that have drivenAscent's growth, we will have a larger portfolio of products and gain a broaderpipeline of products to support continued growth."

"Australia is a very interesting market for us," Olafssonsaid in a presentation to investors the day after the announcement. "We haveassets in Australia. We own Willow, which focuses on injectables … but we alsoown a company called Spirit, which focuses on developing products for theAustralian market—they have licensed out many of their products. But withinthese two companies, we have a significant portfolio that we want to let workfor us going forward. We really want to monetize the products and M&As wehave in Australia, and Ascent is a fantastic base to take it forward."

In acquiring Ascent, Watson purchased the 94 percent ofshares held by Strides and the other 6 percent owned by Dennis Bastas, CEO ofAscent.

"The sale of Ascent is a value-enhancing and forward-lookinginitiative for Strides," said Arun Kumar, executive vice chairman and group CEOof Bangalore, India-based Strides Arcolab, in an official statement. "We havebeen clear about our intention to focus on our highly attractive sterilessegment, which we expect to be our growth engine going forward. The transactionfurther facilitates the execution of this strategy and unlocks significantvalue for the group. Furthermore, the proceeds from the transactionconsiderably strengthen our balance sheet."

Zacks Investment Research was upbeat about the deal, sayingin an investor note, "We are very pleased with this development, as WatsonPharma will now gain a foothold in Malaysia, Hong Kong, Vietnam and Thailand.Moreover, Ascent Pharmahealth has a 14-percent market share in the dermatologyand skin care market of Australia. This will help diversify Watson Pharma'sportfolio."

Helping make the acquisition even sweeter for Zacks was thatit followed a collaboration agreement signed the previous month between WatsonPharma and Amgen Inc. for the worldwide development and commercialization ofoncology antibody biosimilar medicines—a deal Zacks anticipates "will helpexpand Watson Pharma's biosimilar and generic portfolio, which will help drivethe company's long-term growth."

"We have a very solid, balanced business model and we'vebeen pursuing this business model for some time and will continue to pursuethis business model for the foreseeable future," Bisaro told investors as heran down Watson's overall successes in 2011 and 2012 for investors the dayafter the acquisition was announced. "It includes a very substantial genericsportfolio and platform. Generics account for about 75 percent of our revenuesright now. We're the third largest in the U.S. right now; probably fourthlargest worldwide. We have operations in key countries and just added to thatwith the announcement of the Ascent acquisition."

"Combining the product portfolios and commercialinfrastructures of Ascent and Watson creates a substantial generics business inthe 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 benefitfrom the continued development under its new owners."