Actavis (née Watson) announced on Wednesday that it will spend up to $305m, including a $150m up-front payment and a potential $45m in near-term milestones for Uteron, a private Belgian company specialised in developing women’s health products. The co-founders of Uteron, one of whom is Stijn van Rompay, formerly of generics company Docpharma*, will remain with the business, which will be run as an R&D and production unit within Actavis’s branded products and biosimilars division. Uteron, which has 60 employees, has two products in late-stage development: Levosert, which is an IUD that delivers 20mcg of levonorgestrel per day and is expected to be indicated for use in contraception and the control of heavy bleeding; and Diafert, a non-invasive immunoassay kit for the measurement of oocyte quality during IVF treatment. Levosert was already partnered with Watson (as it was then) for western Europe and has other companies lined up to sell it elsewhere. Gedeon Richter has the eastern European rights and Medicines360 will be responsible for the US and some other countries. Diafert, on the other hand, will be available for Actavis to sell globally and should fit well with its biosimilar rFSH, which is also used in IVF. Further back in development, Uteron also has a novel oral contraceptive based on natural oestrogen, which should launch in 2018, as well as some other products, none of which has yet been partnered.
Strategically, this deal makes a lot of sense. We have argued previously that Watson should be focusing more on brands in Europe, and Uteron appears to be a nice fit with the company’s existing women’s health franchise, which contains products such as Gelnique (for overactive bladder), Crinone (progesterone gel for maintaining pregnancy) and Generess FE (a novel oral contraceptive). Moreover, Uteron provides products that Watson can sell outside the US, which it needs now that the Actavis purchase has given it a global-ish footprint. Whether Uteron is actually good value for money is another matter, but Watson has done far more incomprehensible deals in the past (Specifar, for a start) and putting valuations on pipeline companies is always difficult.
Looking further ahead – and should it ever become possible – an obvious deal for new Actavis would be to buy the Hungarian company Gedeon Richter. Richter, which is expected to report turnover of around €1,1bn for 2012, generates a third of its sales from women’s health products (mainly oral contraceptives), has a European geographic presence that has almost no overlap with Actavis (except in Russia) and is almost fully branded. The company has a dedicated women’s health sales force in western Europe (as well as in the East) and has just launched Esmya, a novel product to treat uterine fibroids that Actavis will be developing for the US market. Behind this, it has other research programmes, courtesy of its recently-acquired Swiss subsidiary, PregLem. At present, the Hungarian government owns 25% of Richter’s shares, which makes it impossible to take over, but these shares have been used to back an exchangeable bond that expires next year. Most probably, the bonds will be redeemed and re-issued, keeping Richter secure for a bit longer, but if the government feels the need to realise some additional cash, there is a chance that it will choose to sell instead.
Leaving aside Richter, Actavis is likely to focus mainly on in-fill deals. According its CEO, Paul Bisaro, speaking at Actavis’s investor day on Jan 25th, there is scope to expand both the branded and the generic sides of the business, with the aim on the generic side being to achieve top five positions in all Actavis’s main markets, rather than to add any more geographies to the existing tally. To a certain extent, this can be done organically, as Actavis rolls out its portfolio of injectables, creams and OTC products in new markets, but in many cases, acquisitions are the only way in which the company will be able to make the leap to join the market leaders. On the branded side of the business, it is more about products, but Actavis would presumably also welcome the addition of marketing companies that are active in its own core areas of women’s health and urology. Debt is likely to be a handicap in the short term, but cash generation is strong and the Uteron deal shows that Actavis is ready to carry on doing deals, even while it finalises the merger between the legacy Watson and Actavis businesses. We do have some concerns over how well the former Actavis business will perform this year, as there is clearly a risk that it was polished up ahead of its sale and that the strong growth shown in 2012 (after several years tracking sideways) will prove unsustainable, but at least there is the potential to cut some costs at the combined group, which should help to offset a dull top line. And since new Actavis won’t be reporting like-for-like figures, it can always hope that nobody will notice.
*bought from his family by Mylan for €194m in June 2005, in what was definitely a better deal for the van Rompays than it was for Mylan