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Highlights of Lone Pine Capital's positions in 1Q 2014

Part 2
Highlights of Lone Pine Capital's positions in 1Q 2014 (Part 2 of 8)

Stephen Mandel’s Lone Pine Capital buys a new stake in Actavis

Lone Pine Capital and Actavis

Lone Pine initiated new positions in Actavis PLC (ACT), LPL Financial Holdings (LPLA), Adobe Systems Inc. (ADBE), Equinix Inc. (EQIX), and Jazz Pharmaceuticals PLC (JAZZ). Top positions the fund sold were Dollar Tree Inc. (DLTR) and American Express Co. (AXP).

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Lone Pine initiated a new position in Actavis PLC (ACT) last quarter that accounts for 2.13% of the fund’s total 1Q portfolio.

Actavis is one of the leading integrated global specialty pharmaceutical companies engaged in the development, manufacturing, marketing, sale, and distribution of generic, branded generic, brand name, biosimilar, and over-the-counter (OTC) pharmaceutical products. The company has operations in more than 60 countries, but the U.S. remains its largest commercial market and represented more than half of its total net revenues for 2013. Actavis develops biosimilar products within the Actavis Specialty Brands segment. Plus, it distributes generic and certain select brand pharmaceutical products manufactured by third parties through the Anda Distribution segment. Actavis has global headquarters in Dublin, Ireland, and U.S. administrative headquarters in Parsippany, New Jersey.

Forest CEO to helm combined entity post-acquisition

Actavis is participating in the consolidation in the pharma space with its acquisition of Forest Laboratories (FRX) in a cash and equity deal valued at approximately $25 billion. The deal, which was announced in February, aims at expanding Actavis’ drug portfolio and geographic footprint. If successfully completed, the transaction will combine two of the world’s fastest-growing specialty pharmaceutical companies, with total annual revenues of over $15 billion anticipated for 2015. Actavis announced recently that, post-acquisition, Forest Laboratories CEO Brent Saunders will helm the combined company as CEO and president. Current Actavis CEO Paul Bisaro will be the executive chairman.

The acquisition of Forest Labs  is expected to generate double-digit accretion in 2015 and 2016, including approximately $1 billion in operating and tax synergies to be realized within three years following the close. The combination will create blockbuster franchises in the Central Nervous System (or CNS), Women’s Health, Gastroenterology (or GI) and Urology, and Cardiovascular therapeutic categories. The combination will have emerging and sustainable portfolios in the Infectious Disease, Respiratory, Cystic Fibrosis, and Dermatology therapeutic categories.

Last month, Forest announced its acquisition of Furiex Pharmaceuticals, a drug development collaboration company, for around $1.46 billion. The acquisition of Furiex is expected to build on Forest’s growing position in gastroenterology with the addition of Furiex’s lead product, eluxadoline, which “will be very complementary” to Forest’s anchor GI product, Linzess. Eluxadoline is being developed for treating symptoms of diarrhea-predominant irritable bowel syndrome, the release on the acquisition said.

According to Fitch, the pharmaceutical space has seen a spate of M&A activity as firms attempt to amass scale, broaden portfolios, and explore tax advantages as a function of transactions. Fitch believes the industry will still maintain high interest on targeted acquisitions or joint ventures to support its internal research and development and commercialization efforts. Fitch made this comment on the recent announcement that Merck & Co. (MRK) is to acquire Idenix Pharmaceuticals Inc. for approximately $3.85 billion in order to amplify options for treatment of hepatitis C (or HCV).

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Actavis growth drivers include acquisitions and new product launches

Actavis’ 1Q 2014 results beat estimates and included the contribution from the Warner Chilcott acquisition last year. Beginning with the first quarter of 2014, Actavis said it’s presenting its operating results in two revenue-producing segments: Actavis Pharma and Anda Distribution. The company swung to a profit with a income was $96.5 million or $0.55 per share from a net loss of $102.8 million or $0.79 per share in the same period the year before. Net revenue for the quarter surged 40% to $2.66 billion from $1.90 billion in 1Q 2013. Revenue increased due to the acquisition of Warner Chilcott, new product launches, and higher international net revenue.

Under Actavis Pharma, North American Generics revenue increased 7% to $1.02 billion, driven by product launches including generic versions of Eli Lilly’s (LLY) antidepressant drug, Cymbalta, and Lidoderm. Anda Distribution segment net revenues for the first quarter 2014 increased 69% to $390 million, compared to $231 million in the first quarter 2013, as a result of volume increases for products within the Anda portfolio.

For the second quarter of 2014, Actavis expects non-GAAP 2014 earnings to be slightly lower than the first quarter of 2014 due to additional competition on certain key products, including competition on the generic version of the painkiller Lidoderm.

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