No float needed as Forest picks up Aptalis

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If you want to bring about a trade sale there’s nothing like announcing plans to float the asset, at least if today’s sale of Aptalis Holdings by its private equity backers is anything to go by.

The private equity group, led by TPG Partners, had filed with the US SEC on December 26 to float part of its Aptalis stake on Nasdaq and raise $500m. Now Forest Laboratories has stepped in with a $2.9bn buyout in what looks like another move by its recently appointed chief executive, Brent Saunders, to turn the ailing group around.

Mr Saunders said the takeover made an “excellent strategic fit”, bolstering its US gastrointestinal and European cystic fibrosis franchises. With the central nervous system the only one of Forest’s five key therapy areas in which it has achieved sufficient scale, the group clearly sees the need for bolt-on acquisitions.

He also said Aptalis was a very well-run company with a strong management team. Sales last year grew 12% to $688m, with earnings before interest, tax, depreciation and amortisation (Ebitda) up 29% to $315m.

Private equity returns

TPG had formed Aptalis through a 2011 merger between Eurand Pharmaceuticals and Axcan Pharma, which it had taken private for $1.3bn back in 2008.

Private equity being a notoriously secretive business, it is not known how large a return TPG has now made, especially as the full effect of any restructuring and special dividends are not clear. However, it is known that Aptalis’s debt was refinanced last year, with its private owners being paid a $400m dividend.

This left the speciality pharma company carrying some $1.25bn of debt, and one reason behind its planned float was to pay some of this back. Forest says it is acquiring Aptalis with no debt on its books, meaning that the $2.9bn price tag includes paying off all of the target’s indebtedness.

Not so for Forest, which is gearing up to the tune of another $1.6-1.9bn. The group was already carrying $1.2bn of debt, but says it sees scope to cut this to below 2x Ebitda soon after the takeover.

Not surprisingly, an aggressive cost-cutting plan lies ahead for Aptalis’s 1,000 employees, with Forest shooting for savings of $75m by 2015 and $125m the year after. Bankers will be heartened to hear that Mr Saunders sees “plenty of firepower” left for additional deals.

Aptalis's top-selling brands ($m)
Product Therapy category 2012 sales 2018e sales Patent expiry
Zenpep Other gastro-intestinal agents 140 299 Feb 2028
Carafate Antacids & anti-ulcerants 114 153 Mar 1996
Canasa/Salofalk Gastro-intestinal anti-inflammatories 114 99 Nov 2007
Urso Cholagogues 43 38 Nov 2007
Ultresa Other gastro-intestinal agents 29 22 -
Source: EvaluatePharma

Among Aptalis’s marketed products Forest highlighted Zenpep, its top-selling brand, which it says is uniquely formulated for treating pancreatic insufficiency, with no generics available. The anti-ulcer drug Carafate is off patent, but there is no significant pathway for generics, it claims.

The one doubtful product of the top three is Canasa, for Crohn’s disease; Forest says patents have been challenged, and litigation is scheduled for 2015. The patent issue is a live one – Forest itself faces the upcoming genericisation of one of its top-sellers, Namenda.

UBS analysts wrote today that, at just 9-10x Aptalis’s Ebitda, the takeover seemed good for Forest, and expressed surprise that Valeant Pharmaceuticals and Actavis had apparently passed on the deal. EvaluatePharma’s estimates put the NPV of Aptalis’s marketed products at exactly $2.9bn, suggesting little premium has been paid.

Forest stock was up 15% in early trade today as investors warmed further to the changes sweeping through the company, which had got itself into a desperate rut under the stewardship of its previous head, Howard Solomon.

The market performance says everything about how badly change was needed: since Mr Saunders took the reins last September the shares have put on over 50%.

To contact the writer of this story email Jacob Plieth in London atjacobp@epvantage.comor follow@JacobEPVantageon Twitter

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