Watson Pharmaceuticals Inc. is buying another generic drugmaker, Switzerland's Actavis Group, for about $5.6 billion in a move that will make Watson in the world's third-biggest generic drugmaker.
Watson, which has seen its profits surge since it started selling an authorized generic version of cholesterol blockbuster Lipitor in December, is now No. 4 globally. It had expected around $5.4 billion in revenue this year. It plans to pay for Actavis with term loan borrowings and the sale of new debt.
Privately held Actavis operates in more than 40 countries and sells more than 1,000 products. The companies said its revenue totaled $2.5 billion in 2011. Watson said the purchase should close during the fourth quarter of 2012, pending approval from regulators. If Actavis meets performance goals in 2012, its shareholders could get up to 5.5 million shares of Watson.
Watson CEO Paul Bisaro said in a statement that the deal will boost its position in Russia and Central and Eastern Europe, and complement its products in the U.S. After the deal is complete, more than 40 percent of Watson's generic drug revenue will come from outside the U.S., and Watson said it believes it will be able to reduce its annual costs by $300 million the three years after the deal closes.
Watson reported $4.58 billion in revenue in 2011, up 29 percent from the previous year, on sales of generic versions of drugs like Lipitor, the pain drug Kadian and attention deficit hyperactivity disorder treatment Concerta. It also expanded its business by buying generics maker Specifar Pharmaceuticals of Greece in May. That deal was valued at $563.1 million.
Watson also makes brand-name products like the enlarged-prostate drug Rapaflo. In December, Watson announced it is partnering with Amgen Inc., the world's biggest biotechnology company, to create "biosimilar" versions of several biologic medicines for cancer. Those drugs would be sold under a joint Amgen/Watson brand.
Teva Pharmaceutical Industries Ltd. of Israel is the world's largest generic drugmaker, with $13 billion in generic drug revenue in 2011. Sandoz, a unit of Swiss drugmaker Novartis AG, was No. 2 with $10.7 billion. Mylan Inc. of Pittsburgh had around $8 billion in sales for the year.
Actavis is headquartered in Zug, Switzerland. It has around 10,000 employees to Watson's 6,700. Watson is based in Parsippany, N.J.
Watson shares climbed $4.01, or 5.8 percent, to $73.70 in aftermarket trading. The stock is up 19.1 percent since March 21, when it was first reported that Watson was in talks to buy Actavis.
After the deal was announced, Moody's Investors Service backed its credit ratings on Watson but lowered its outlook to stable from positive. Fitch Ratings said it will downgrade Watson if the deal proceeds as planned because the deal would increase Watson's debt to $6.8 billion from $1.1 billion.