ALIOF

Actavis (ACT) has received a binding offer for its generics commercial operations in seven Western European countries (France, Italy, Spain, Portugal, Belgium, Germany and the Netherlands) from India-based Aurobindo Pharma Limited. Total value of the deal is expected to be €30 million.

If the deal goes through, Aurobindo Pharma will acquire Actavis' pharmaceutical commercial infrastructure including personnel, commercial infrastructure, products, marketing authorizations and dossier licenses in the covered countries. Aurobindo Pharma estimates that the net sales of the acquired businesses will be approximately €320 million in 2013, representing an increase of more than 10% from the year ago period. The companies will also enter into a supply agreement.

The divestment will allow Actavis to focus more on its core and higher growth areas (including Central and Eastern Europe and Southeast Asia). We are positive on the potential deal.

Industry-Wide Trend

We note that Actavis is not the only company focusing on its core assets and divesting (or planning to divest) its non-core assets to drive growth. Several other big pharma companies have either divested or entered into agreements to divest their non core assets. For example, GlaxoSmithKline (GSK) divested several non-core brands from its Consumer Healthcare segment and Johnson & Johnson (JNJ) recently received a binding offer for its Ortho-Clinical Diagnostics (OCD) business.

In the near term, we believe that investor focus will remain on Actavis’ release of fourth quarter and full year 2013 results (Feb 20). Actavis expects fourth quarter 2013 adjusted earnings to be slightly above the high end of the previously issued guidance of $2.95–$3.05 per share.

The Zacks Consensus Estimate currently stands at $3.02, well below the company’s guidance. We expect to see significant upward revisions in earnings estimates for the fourth quarter and full year 2013.

Actavis carries a Zacks Rank #1 (Strong Buy). Other stocks which look attractive at current levels include Actelion Ltd. (ALIOF). The stock carries the same Zacks Rank as Actavis.

 
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