Warner Chilcott buying Procter & Gamble drug business for $3.1 billion

Wednesday, August 26, 2009

TRENTON, N.J. -- Shares of Ireland's Warner Chilcott Plc skyrocketed Monday on news of its bid to morph from a small, specialty pharmaceutical company to a global player by buying Procter & Gamble Co.'s prescription drug business for $3.1 billion.

The maker of women's health and dermatology products will get a portfolio with $2.3 billion in annual sales, including blockbuster osteoporosis drug Actonel, and triple its revenue in a rare deal financed entirely by bank debt.

Overnight, Ardee, Ireland-based Warner Chilcott will greatly expand its women's health products, gain a toehold in the somewhat-complementary urology and gastroenterology markets, and expand into 14 new countries, mainly in Western Europe.

"It gives them immediate scale. It gives them an R&D franchise, too," said analyst Les Funtleyder at Miller Tabak & Co.

The deal brings Warner Chilcott an unspecified number of Procter and Gamble's prescription drugs in development, manufacturing facilities in Puerto Rico and Germany, a trained sales force of roughly 1,200 and a research and development team nearly as big.

"Our acquisition of the Procter & Gamble pharmaceutical business is a transformational event for Warner Chilcott," Roger Boissonneault, president and chief executive, told analysts.

Warner Chilcott shares surged $4.35, or 27 percent, to close at $20.41 in Nasdaq trading Monday, while Cincinnati-based Procter & Gamble's shares fell 24 cents to $53.34 on the New York Stock Exchange.

Actonel alone will bring nearly $1 billion in annual sales, more than Warner Chilcott's total 2008 revenue of $938 million. Company executives told analysts they plan later this year to seek U.S. approval for a successor drug -- important because Actonel loses patent protection in 2013.

The company also gets a colitis drug called Asacol with about $600 million in annual sales, a patent through 2014 and an extended release version just launching, plus Didronel for Paget's disease and other bone disorders and Enablex for overactive bladder. The deal is expected to close by year-end.

"They have five or six years ... to really get things going," said Funtleyder, and the company "will have to execute well in order to see longer-term returns."

Warner Chilcott executives were somewhat tight-lipped about the pipeline of experimental drugs they are getting, but said it includes an antibiotic, a heart rhythm drug and Intrinsa, a testosterone patch for women with low sexual desire. But Intrinsa has been rejected so far by the U.S. regulatory Food and Drug Administration.

Warner Chilcott's products include some well-known oral contraceptives -- Loestrin 24 FE, Femcon FE and Ovcon -- plus multiple treatments for menopause symptoms such as hot flashes and vaginal dryness, including Femhrt, Femring and Estrace. It also sells skin products such as acne treatment Doryx, Pyridium for pain from urinary tract infections, Moisturel skin cleansers and therapeutic creams, Taclonex ointment for psoriasis and Sarafem for severe physical and emotional problems linked to the menstrual cycle.

Warner Chilcott said it is borrowing the entire $3.1 billion, in a senior unsecured bridge facility and a senior secured bank facility, from JP Morgan Chase & Co., Bank of America Corp., Credit Suisse Group, Morgan Stanley, Barclays PLC and Citigroup Inc.

"We view the fact that the company was able to go out and secure financing commitments from a group of six high-quality financial institutions on what we believe are good terms and enable us to do this deal is quite an accomplishment, particularly in light of the way the market has been over the last, let's say six to nine months or more," Warner Chilcott Chief Financial Officer Paul Herendeen said. "Right out of the chute, we expect this to be accretive for our shareholders."

Funtleyder, the analyst, also said it's also important "somebody was able to actually get financing for a transaction," but that doesn't make a trend yet.

The company said it plans to replace all short-term financing with longer-term loans and notes.

In a Securities and Exchange Commission filing late Monday, Warner Chilcott said that if the deal doesn't close by Dec. 31, it will have to pay a $93 million termination fee to Procter & Gamble.

Moody's Investors Service on Monday affirmed the B1 ratings of two Warner Chilcott subsidiaries, saying their outlook remains stable and that cash flow after the deal closes should be substantial and help in paying down debt.

Procter & Gamble, which is selling the business to focus on its consumer products, said the sale will result in a one-time gain of $1.4 billion, or about 44 cents per share, but the sale will lower its profit in future years by 16 to 18 cents per share.

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AP Business Writers Marley Seaman in New York and Dan Sewell in Cincinnati contributed to this report.

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