Forest nabs Aptalis for $2.9B in its CEO's latest move toward a turnaround

Forest Laboratories ($FRX), hungry for sales to replace its flailing antidepressant Lexapro, has sewn up a $2.9 billion deal for the specialty drugmaker Aptalis. It's the latest move in a wham-bam series of changes designed to get Forest back on a profitable track.

Forest has been reeling from the 2012 loss of Lexapro's patent--and scrambling to persuade investors that its next wave of products will lift the company's fortunes. Those new drugs have turned in some early successes, but the FDA recently put off Forest's antipsychotic drug candidate cariprazine, putting a kink in those plans.

So, Forest has also been looking for deals to ease the pain. Enter Aptalis: Forest's brand-new CEO, Brent Saunders, figures the buyout will bump sales by $700 million next year. Longer term, it's an opportunity for Forest to build up in two new specialty areas: Aptalis has a portfolio of gastrointestinal drugs in the U.S. and a strong presence in cystic fibrosis in Europe.

Saunders also plans to squeeze $125 million in costs out of the combined company. That's on top of the $500 million cost-cutting program he announced last month. That restructuring plan includes layoffs designed to save $110 million. Overall, the company plans to ax $270 million in R&D spending, cut marketing by $150 million and shave $80 million elsewhere.

Together with a $400 million stock buyback plan, the cost cuts are aimed at assuaging investors' worries. And Forest has plenty of experience with worried shareholders, after two bloody proxy battles with activist investor Carl Icahn. Last year, Forest averted a third fight by coming to an early truce with Icahn, who now has two allies on the company's board.

The Aptalis deal gives the private equity firm TPG an exit. TPG bought Axcan Pharma in 2008 for about $1.3 billion, the Wall Street Journal notes. The firm then merged Axcan with Eurand NV to form the latest incarnation of the company, then dubbed Aptalis. TPG put Aptalis up for sale last year, but failing a deal, filed for an IPO last month. The firm had been looking for $3 billion to $4 billion from a sale.

Aptalis posted sales of $688 million for its fiscal year ended September 30, with its GI products Canasa, Carafate and Zenpep leading the way, Forest said. International sales accounted for about 15% of the private company's revenue. 

This isn't the only recent deal Saunders has wrapped up. The company bought the rights to Merck's antipsychotic drug Saphris at the end of 2013. With other key drugs losing patent protection soon, including the Alzheimer's drug Namenda, Forest has plenty of holes to fill.

- see the Forest announcement
- read the WSJ article (sub. req.)

Special Report: 10 Largest U.S. Patent Losses - Forest Laboratories