Watson completes Arrow acquisition

Watson Pharmaceuticals announced on 2nd December 2009 that it had completed its acquisition of Arrow Group. Watson announced that it had entered into a definitive agreement to acquire Arrow on 17th June 2009, in a deal that would cost US$1.75 billion in cash and stocks. Watson commented that it believed the transaction would be accretive to cash earnings per share in 2010, as a result of Watson needing a relatively small amount of additional debt to complete the deal. Watson added that the acquisition would create a company with over US$3 billion in annual revenues. Watson's total revenues in the year ended December 2008 were worth over US$2.5 billion, and the firm commented that Arrow's revenues in 2008 were worth over US$650 million.

Arrow Group was founded in 2000, and Watson has commented that it is one of the fastest growing generic pharmaceutical companies in the world, with a compound annual growth rate of 67%, taking its revenues from US$18 million in 2001 to the US$650 million reported last year. The firm has three factories, in Canada, Malta and Brazil, with the first two being FDA and EU-approved. Over the past seven years, Arrow has invested more than US$320 million in product research and development and markets over 100 molecules including more than 50 internally developed products. Arrow claims 60 products developed in six years, with 55 European submissions and 50 in the US. Watson noted that Arrow's product development activities are supported by state-of-the-art R&D centres in Melbourne, Australia, and Toronto, Canada. Watson added that as a result of the acquisition, it was also acquiring a 36% ownership interest in Eden Biodesign, a company which provides development and manufacturing services for early-stage biotech companies. This will provide Watson with a foundation for generic biologics.

Arrow has a presence in the UK, Ireland, France, Germany, Poland, Scandinavia, Slovenia, Malta, South Africa, India, China, Australia, New Zealand, Brazil, the US and Canada. Its US presence is in the form of Cobalt Laboratories, which has gained a number of ANDA approvals in recent years, including three first-time generics: acarbose tablets in May 2008; and topiramate tablets and capsules in March 2009 and April 2009, respectively. However, it is likely to be Arrow's international operations that will be of most interest to Watson. The firm had previously considered its operations to be based predominantly in the US and India, with its key commercial market being the US, and so the acquisition of a company with a presence in so many other countries will increase Watson's scope considerably. So too will the included 36% stake in Eden Biodesign, through which Watson clearly sees scope for entering the biosimilars market. With the growing likelihood of a regulatory biosimilars pathway emerging in the US, it makes sense for a company the size of Watson to seek ways to gain a toehold in this arena before the competitive floodgates are opened.

Ian Platts - Editor, World Generic Markets