Biotech Values

[DewDiligence]

FRX to Acquire Cerexa for $480M

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061214:MTFH99060_2...

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Thu Dec 14, 2006 12:34 PM ET
By Lewis Krauskopf

NEW YORK, Dec 14 (Reuters) - Forest Laboratories Inc. <FRX> said on Thursday it will pay about $480 million to acquire privately held Cerexa Inc. to gain rights to several antibiotics, including one nearing late-stage development.

Forest will obtain rights to two injectable antibiotics and an option to an early-stage injectable antibiotic. The lead product being acquired is a hospital-based drug, ceftaroline acetate, that Forest said could reach the market by 2010.

The drug maker, whose shares fell slightly, is under pressure to develop or acquire products that register sales ahead of 2012, when its blockbuster Lexapro antidepressant is expected to lose patent protection.

Piper Jaffray analyst Deborah Knobelman said ceftaroline could reach as much as $500 million in annual sales. Lexapro sales totaled nearly $2 billion in Forest's most recent fiscal year, or about 63 percent of total company sales.

"Hopefully they still have enough cash to do more business development activity to fill out their pipeline between now and 2009 or 2010," Knobelman said. "This is one step in that process, but it's not the answer."

U.S. regulators dealt Forest a blow in October when they denied approval to its faropenem antibiotic, although analysts say that product can still be salvaged. Phase 3 studies evaluating ceftaroline for treating complicated skin infections are set to start in the first quarter of 2007. Phase 3 studies in community-acquired pneumonia are scheduled to begin the second quarter.

Forest said it hopes to launch ceftaroline, which is part of the cephalosporin class, in 2010 or 2011 for these two initial uses.

The second product, ME1036, is in preclinical development.

"We have a high degree of confidence in the successful commercialization and financial prospects for ceftaroline given the strength of the existing clinical data and the clinical need for a next-generation hospital-based antibiotic," Howard Solomon, Forest's chief executive, said in a statement.

New York-based Forest expects to incur a one-time after-tax charge of about 96 cents per share upon closing of the deal, which it sees in its fiscal fourth quarter that ends in March. Excluding the charge, Forest reaffirmed its fiscal 2007 forecast of $2.60 per share to $2.65 per share.

Including transaction costs and fees, the deal is valued at about $494 million, Forest said. The company also has agreed to make a future one-time payment of $100 million if U.S product sales of ceftaroline during any twelve-month period within the first five years following the product launch exceed $500 million.

Forest shares were down 32 cents, less than 1 percent, to $50.98 in the early afternoon on the New York Stock Exchange. They remain up about 24 percent this year, propelled in part by a U.S. court victory in July that upheld Lexapro's patent.
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