February 22, 2011 / 2:39 PM / 8 years ago

Forest Labs to acquire Clinical Data for $1.2 billion

BOSTON (Reuters) - Forest Laboratories Inc FRX.N said it would acquire Clinical Data Inc CLDA.O for $1.2 billion to add to its portfolio of drugs to treat depression.

Forest, which makes the antidepressants Lexapro and Celexa and the Alzheimer’s drug Namenda, will pay $30 a share in cash. It pledged additional payments of up to $6 a share if Clinical Data’s recently approved antidepressant Viibryd achieves commercial milestones.

The companies said $30 a share represents a premium of 6.6 percent to the volume-weighted average trading price of Clinical Data stock since the first trading day after the company announced U.S. approval of Viibryd and said it was considering a potential change of control.

However, the price was below Clinical Data’s closing price of $33.90 on Friday, and fell well short of what some analysts expected. Shares of both Clinical Data and Forest fell nearly 8 percent in premarket trading.

Forest said it expects the acquisition will dilute its earnings per share for the next three fiscal years. The transaction is not expected to affect the company’s 2011 financial forecast.

For the fiscal year ending in March, New York-based Forest has said it expects earnings of $4.20 to $4.30 a share, excluding one-time items.

Forest, like many pharmaceutical companies, needs new products to make up for those that are scheduled to lose patent protection. Lexapro, the company’s biggest-selling product, is set to lose patent protection in early 2012, while Namenda is expected to lose protection by 2015.

Once a drug loses its exclusivity, the field becomes open to generic drugmakers, who sell much more cheaply and typically take the majority of the market.

Viibryd was approved by U.S. regulators on January 21 for the treatment of adults with major depressive disorder. Forest said it plans to launch Viibryd in the United States during the second half of 2011 and is expected to retain market exclusivity until March 2020.

“We believe that we are uniquely positioned to bring Viibryd to market in light of our long and successful experience of clinical development and expertise in the antidepressant market,” said Howard Solomon, Forest’s chief executive. “This transaction is consistent with our strategy to acquire new products that will help offset the loss of revenues due to patent expiries.”

The transaction is the second in a week to use contingent payments as a way for an acquiring company to mitigate the risk of an asset failing to perform as expected.

Last week French drugmaker Sanofi-Aventis SA (SASY.PA) struck a deal to acquire U.S. biotech company Genzyme Corp GENZ.O for $20.1 billion plus future payments based on the performance of Genzyme’s experimental multiple sclerosis drug.

Clinical Data’s biggest shareholder is Randal J. Kirk, the founder and senior managing director of Third Security LLC, an investment management firm based in Radford, Virginia.

Clinical Data shares fell 7.8 percent in premarket trading, while Forest shares were down $2.63, or 7.7 percent, to $31.70.

Reporting by Toni Clarke, editing by Gerald E. McCormick and John Wallace

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