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How Actavis and Allergan Merger May Boost Branded Business

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Highlights of merger

Actavis’s (ACT) acquisition of Allergan (AGN) created the tenth largest global pharmaceutical company measured by sales. The transaction was valued at ~$70.5 billion in cash and equity transactions as of March 17, 2015. The key highlights of the acquisition are:

  • More than $23 billion of pro forma revenues are estimated in 2015
  • A minimum of $1.8 billion in synergies are projected primarily from cost cutting via job cuts and other savings—largely $400 million in R&D—and $400 million from sales and marketing.
  • A footprint expansion across 100 international markets will be created.
  • The combined entity will be able to generate organic revenue at a CAGR (compound annual growth rate) of 10% in the future.

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Positive impact on branded business

Allergan focuses on the following therapeutic areas:

  • ophthalmology
  • neurosciences
  • medical aesthetics
  • dermatology
  • breast aesthetics
  • urology

The addition of Allergan’s portfolio will enhance Actavis’s position in the branded business. It is expected to double the revenue of North American Specialty Brands and will now make the highest contribution of ~52% of the company’s revenue, compared to 35% in 2014. This is expected to bring better profitability, as branded products have higher margins than generic products.

Expanded geographic presence

This acquisition will enhance the Actavis’s presence in the international markets: Canada, Europe, Southeast Asia, China, India, the Middle East, and Latin America. The combined entity will have access to 100 markets for commercialization.

Strong product pipeline

The combined company expects to have a robust product pipeline with ~23 products in the late stage across therapeutic areas. Also, ~15 projects in near-term and mid-term development are expected to add to the company’s product pipeline. Actavis intends to invest ~$1.7 billion in research and development annually.

Actavis’s growth can be monetized through ETFs such as the SPDR S&P Biotech ETF (XBI) and the iShares US Healthcare ETF (IYH) that cover generic companies, such as Actavis (ACT), Hospira (HSP), Mallinckrodt Plc (MNK), and Mylan (MYL).

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