Five years ago, Paul Bisaro
took over Watson Pharmaceuticals, a company that rang up 99 percent of its
sales inside the U.S. “For us to be successful as a first-tier generics
company, we had to have a global footprint,” he says. It cost $5.61 billion,
but the Parsippany (N.J.)-based company has one now. That’s the price Watson
paid to buy Icelandic competitor Actavis and assume its name in a deal that
closed late last year. Since then the stock has climbed 24 percent, capping a
five-year stretch over which the shares gained 231 percent. That performance
helped drive Actavis (ACT) to the top of this year’s Bloomberg Businessweek 50 ranking of
top-performing companies in the Standard & Poor’s 500-stock index.
Actavis is now the
fourth-biggest generic drugmaker by sales. IMS Institute for Healthcare
Informatics projects generic sales will increase at least 65 percent from 2011
to 2016, to more than $400 billion, compared with 3 percent to 8 percent in the
larger branded market.
Bisaro has set a goal of
increasing earnings by double digits every year, as the company has done since
2008. “That’s a tough ride to match,” he acknowledges. To reach his target, the
chief executive officer is eyeing emerging markets, where rising incomes mean
people are spending more on health care. And instead of buying the cheapest
drugs available, they’re stepping up to manufacturers like Actavis, whose brand
signals better quality, Bisaro says. The company is targeting former
Soviet-bloc countries: “They have oil money in Kazakhstan, so there’s
disposable money there.” Bisaro is also looking to Southeast Asia, a region he says
has 600 million potential customers.
While keeping its focus on
generics, Actavis has expanded into higher-margin brand-name drugs including
Rapaflo, a treatment for enlarged prostates, the topical testosterone
treatments Androderm and Androgel, and an emergency contraceptive called Ella.
Brand names are expected to account for about 7 percent of sales this year.
Adding branded drugs and
chasing growth overseas has pleased Wall Street, but it’s a riskier strategy
than sticking to selling generics in the U.S. “They’re likely the best generic
management team on the street,” says Ken Cacciatore, an analyst at Cowen Group,
who has a neutral rating on the stock. “The next leg is going to be more
difficult than the last, but it’s also going to be more lucrative.”
Last year the Food and Drug
Administration rejected Actavis’s Prochieve, a drug to prevent premature
births. The stumble has made the company more cautious. To mitigate its risks
in drug development, Actavis is taking on partners. Bisaro struck a deal at the
end of 2011 to pay Amgen (AMGN), the world’s biggest biotechnology company, $400 million to jointly
develop so-called biosimilars, copycat versions of expensive biotechnology
drugs.
Bisaro, who expects sales of
generics overseas will eventually account for half of Actavis’s revenue, is
discovering the challenges of competing in a global market. He says the U.S.
tax structure means “we’re forced to move more jobs overseas so we can get a
lower tax rate and be competitive” with foreign rivals. “You’re subject to 60
different governments that could do things that they think make sense but at
the end of the day really don’t,” he says. “That’s what keeps me up the most.”
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