Biotech Values

[DewDiligence]

Warner Chilcott to Buy PG's Prescription-Drug Unit

[If the deal goes through as described here, the price of only 1.5x sales is a fire-sale valuation.]

http://online.wsj.com/article/SB125105652473052009.html

›AUGUST 23, 2009, 4:48 P.M. ET
By JEFFREY MCCRACKEN

Specialty drug maker Warner Chilcott Ltd. is expected to announce as early as Monday the acquisition of Procter & Gamble Co.'s prescription-drug business for about $3 billion, say people familiar with the matter, a sign that the market for loans on more highly levered deals may be loosening.

Six banks -- led by J.P. Morgan Chase & Co. and Bank of America Corp. and including Credit Suisse Group, Citigroup Inc., Barclays Plc and Morgan Stanley -- are expected to put up to $4 billion in financing for the transaction. Roughly $3 billion will go towards the acquisition, with the remainder refinancing $1 billion in existing Warner Chilcott debt.

Cerberus Capital Management LP and rival drug-maker Forest Laboratories were also interested in the business, said the people familiar with the matter. But Warner was able to produce the best bid for the Ohio-based unit, which will be run as a wholly-owned subsidiary of New Jersey-based Warner.

A key issue in the talks, said these people, was an ongoing patent-dispute lawsuit between P&G and generic-drug maker Roxanne Laboratories, an Ohio-based subsidiary of Germany's Boehringer Ingelheim. P&G sued Roxanne in October 2007 over the P&G drug, Asacol, an ulcerative colitis drug. The suit came after Roxanne earlier sought approval from the FDA to product a generic version of Asacol. The suit is still pending.

P&G was confident in its defense and has won similar cases in the past, including one against Israeli drug maker Teva over Actonel, the osteoporosis treatment for women that is the division's best-selling product.

Nonetheless, Warner Chilcott and Forest wanted the matter settled before inking a deal, said these people, while Cerberus offered a lower price but was willing to take on the potential liability. The status of the matter was unclear Sunday.

A P&G spokesman declined to comment on the deal. The company made clear last year it "would look at all options" for the division, said spokesman Tom Millikin.

The deal should boost the profile of Warner Chilcott, which focuses on women's health care and dermatology products. Folding in the division would triple Warner's revenue and give it access to drugs that focus on a wide range of women's health concerns.

The company recently reported second-quarter profits of $56 million on sales around $251 million. Its shares trade around 2009 highs of $16.

The P&G unit -- which makes roughly $800 million in operating profit -- was put on the auction block late last year, in a sales process led by Goldman Sachs Group Inc. It has annual sales around $2 billion.

For years P&G has struggled to gain a foothold in the pharmaceutical industry, having aborted a 2000 plan to swallow drug makers Warner-Lambert and American Home Products. [Had they made those deals, PG would have become the world’s largest drug company!]

The failed takeover eventually led to the ouster of P&G's chief executive at the time. By 2006 the company announced plans to end most of its in-house work on drug discovery, investing instead in forging pacts with small biotech companies and universities.‹