Forest Labs to Buy Furiex for $1.1B - Analyst Blog

In a bid to strengthen its gastrointestinal (GI) portfolio, Forest Laboratories, Inc. FRX inked a definitive agreement to acquire Furiex Pharmaceuticals FURX. As per the terms of the deal, Furiex shareholders will receive $95 per share in cash (or $1.1 billion). The offer price represents a premium of 18.5% to Furiex's closing price on Apr 25, 2014. Forest Labs intends to fund the acquisition through its available cash balance. The potential association with a big player like Forest Labs boosted Furiex's shares (up 28.6%).

Furiex's stockholders are also eligible to receive up to $30 per share in a Contingent Value Right CVR depending on the status of Furiex's diarrhea-predominant irritable bowel syndrome (IBS-d) candidate, eluxadoline, as a controlled drug following clearance by the U.S. Food and Drug Administration (FDA). U.S. approval of the candidate will be sought by Sep 30, 2014.  

As per the terms of the deal, holders of the CVR will receive $30 per share in the event of eluxadoline being cleared by the FDA without scheduling. However, CVR holders will receive $20 per share and $10 per share, respectively, in the event of the eluxadoline being designated as a schedule 5 or schedule 4 controlled drug by the U.S. Drug Enforcement Administration (DEA), following FDA approval.

The candidate has performed encouragingly in clinical trials and positive top-line results from two pivotal phase III studies (3001 and 3002) on eluxadoline were announced by Furiex earlier in the year. We expect the candidate to be approved by the FDA. Eluxadoline, on approval, would enter a very lucrative IBS-d market. The disease affects approximately 28 million patients in the U.S. and Europe.

In the event of the deal going through, Forest Labs' GI portfolio, which already includes Linzess, would be strengthened by eluxadoline's addition. We note that this is the second deal by Forest Labs this year aimed at strengthening its GI portfolio. In Feb 2014, Forest Labs acquired U.S. based privately-held Aptalis for $2.9 billion in cash. The Aptalis acquisition has also boosted Forest Labs' position in the cystic fibrosis CF market in Europe.

We note that Forest Labs' impending acquisition of Furiex is expected to close in the second/third quarter of 2014 pending regulatory review and approval of Furiex shareholders. The deal enjoys the support of Actavis ACT, which is looking to acquire Forest Labs for a cash and equity combination of $25 billion. Actavis intends to complete the deal in mid-2014. The timing will not be altered due to Forest Labs' proposed acquisition of Furiex.

We believe that Forest Labs' impending acquisition of Furiex is unique in the sense that the proposed acquirer is itself going to be purchased soon.

Forest Labs also inked a deal with Royalty Pharma to divest to the latter Furiex's royalties on Nesina (alogliptin: type II diabetes) and Priligy (dapoxetine: premature ejaculation) for approximately $415 million following the completion of its takeover of Furiex. Forest Labs said that the deal with Royalty Pharma would effectively bring down Forest Labs' purchase price by about $315 million after taxes.

Both Forest Labs and Furiex are Zacks Rank #3 (Hold) stocks. A better-ranked stock in the medical sector is Salix Pharmaceuticals Ltd. SLXP with a Zacks Rank #1 (Strong Buy).