Forest Laboratories to acquire Clinical Data for $1.2 billion
NEW YORK & NEWTON, Mass.—Forest Laboratories Inc. and Clinical Data Inc. announced Feb. 22 that they have entered into a definitive merger agreement under which Forest will acquire Clinical Data, a specialty pharmaceutical company focused on the development of first-in-class and best-in-category therapeutics, for $30 per share in cash plus contingent consideration of up to $6 per share that may be paid upon achievement of certain commercial milestones related to Viibryd.
The upfront consideration of $30 per share represents a 6.6 percent premium to the volume-weighted average trading price of Clinical Data stock since the first trading day after the company announced the approval of Viibryd and that it was considering a potential change of control transaction. The price is a 19.2 percent premium of the closing price on that same day and totals $1.2 billion on a fully diluted basis, net of net cash acquired. Forest will finance the transaction with existing cash. The transaction was approved by the boards of both companies and is expected to be completed in the second quarter of 2011, subject to customary closing conditions.
Forest is looking to the acquisition to leverage its existing presence in the antidepressant category through the launch of Viibryd, which was developed by Clinical Data and approved by the U.S. Food and Drug Administration (FDA) in mid-January for the treatment of adults with major depressive disorder (MDD). Viibryd is a selective serotonin reuptake inhibitor and a 5-HT1A receptor partial agonist.
With Celexa and Lexapro, Forest says that it has a proven track record of successfully commercializing novel anti-depressants and notes that the market for the treatment of MDD is more than 200 million prescriptions annually—and is on the rise. Forest plans to launch Viibryd in the United States during the second half of 2011, and the drug is expected to retain market exclusivity until March 2020 including full patent term extension of its composition of matter patent and anticipated pediatric exclusivity.
"We believe that we are uniquely positioned to bring Viibryd to market in light of our long and successful experience of clinical development and expertise in the antidepressant market," says Howard Solomon, the chairman,CEO and president of Forest Laboratories. "This transaction is consistent with our strategy to acquire new products that will help offset the loss of revenues due to patent expiries. Viibryd will be the second new product that we expect to launch this year in addition to Teflaro. In addition, we are hopeful to obtain FDA approval later this quarter for Daxas for the treatment of COPD. We plan to submit New Drug Applications for aclidinium and linaclotide in the second half of this year and for two additional products in calendar 2012."
In addition to Viibryd, the transaction brings to Forest Stedivaze, a potent agonist of the adenosine A2A receptor subtype with improved selectivity for this receptor over other subtypes (A1 and A2B). Stedivaze is a coronary vasodilator in Phase III development as a pharmacologic stress agent for radionuclide myocardial perfusion imaging.
The transaction is expected to be dilutive, net of synergies, to Forest's earnings per share for the next three fiscal years, with earnings per share dilution in the range of $0.55 to $0.65 in fiscal 2012. Forest believes the transaction may become accretive during fiscal 2014 but, in any case, is not expected by Forest's management to impact the company's fiscal year 2011 financial guidance.
Solomon notes that the launch of Viibryd will require significant incremental marketing and sales investment, including a planned sales force expansion. Additional sales resources will be necessary in order to adequately support Viibryd, as well as our currently marketed products Teflaro, Savella, Bystolic, Namenda and Lexapro and the anticipated launch of Daxas, pending FDA approval in calendar 2011.
Global independent market analyst firm Datamonitor sees the acquisition as a shrewd move that will provide a rosier future for Forest's antidepressant portfolio.
"Since gaining FDA approval for its novel antidepressant Viibryd, Clinical Data has become a prime acquisition target. A partner with an existing presence in the depression market is vital in order to maximize the drug's commercial potential," points out Daniel Chancellor, a healthcare analyst at Datamonitor. "Forest fits the bill perfectly. The company will be able to leverage its existing sales and marketing experience accrued through the successes of Cipralex and Lexapro. It also refreshes a pipeline that suffered a recent setback with negative Phase III data for levomilnacipran."
"Datamonitor believes that Viibryd will be positioned by prescribers as option for patients experiencing an inadequate response or intolerable side effects from conventional antidepressant therapy," Chancellor adds, going on to note: "The acquisition of Clinical Data will provide Forest with a means to partially offset the impact of generic erosion of its blockbuster antidepressant Lexapro from 2012."
However, Gary Nachman, an analyst at Susquehanna International Group, told Bloomberg in a phone interview that it was uncharacteristic for Forest to put out this level of cash upfront. He said that because Forest has "a lot of cash left" he expects them to do more deals, but said he "would have liked to see them do something that's more accretive within the next few years."
Piper Jaffray & Co. analyst David Amsellem also had reservations, telling Bloomberg that Forest's idea to leverage its existing sales force to drive more than $1 billion in annual sales for Viibryd isn't realistic in a market with such heavy generic penetration, adding that he thinks "
the days of the blockbuster antidepressant are largely behind us." Amsellem said he expects annual sales of Viibryd to peak at between $500 million and $700 million.