Actavis Maintains Acquisitive Mode

The Icelandic drugmaker failed in its bid for Pliva, but it continues its quest for growth.
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Perhaps most U.S. investors would pause before using the words "Iceland" and "big drug company" in the same sentence. But there's ample reason to associate the two.

Iceland's

Actavis Group

has become one of the world's biggest generic-drug makers as well as one of the most acquisitive. Since 1999, the company has made 25 acquisitions, primarily in Eastern and Central Europe, but also in the U.S. The effect of all these acquisitions is apparent in the company's growth. Seven years ago, Actavis had 146 employees; now it has more than 10,000 in 32 countries.

Last year, Actavis recorded sales of $739 million; this year, it expects about $1.8 billion. This year's revenue gets a boost primarily because of a deal late last year that gave Actavis the U.S. human-health generics business of

Alpharma

(ALO) - Get Report

. Earlier in 2005, Actavis bought the U.S. company

Amide Pharmaceuticals

.

This year's revenue estimate might have been higher if Actavis had acquired

Pliva

, a Croatian generic-drug company. Actavis was outbid by

Barr Laboratories

(BRL)

, which offered $2.5 billion and commenced a tender offer. A

Barr-Pliva merger would create the world's third-largest generic-drug company.

Actavis CEO Robert Wessman won't raise his offer for Pliva, but he says Actavis would still be interested if Pliva's shareholders balk at Barr's bid. Barr needs to secure more than 50% of Pliva's shares by Oct. 11.

Actavis holds nearly 21% of Pliva shares, either directly or through options agreements, and the Croatian government owns about 18%. Wessman says he "cannot comment" on whether he has talked to other Pliva investors, and he won't say if Actavis will accept Barr's tender offer.

If Barr buys Pliva, Wessman says, he would probably search for a bunch of smaller companies to match the scope of Pliva. "There are not that many companies that are available

fitting Actavis' requirements," he said in a recent interview with

TheStreet.com

.

A Shopping List

Wessman says he will use the same strategy for new acquisitions that he applied to most of his previous deals, searching for companies in countries where production costs are low and profit margins are high.

That means he's more interested in Central and Eastern Europe than in Western Europe, where competition is tougher and government policies on drug pricing are stricter. Right now, he says, the best markets for growth include Russia and Ukraine; strong, stable markets include Poland, Bulgaria and Turkey.

"You have to prioritize; we have our list

of desired markets," he says. "Eventually, we want to be everywhere."

Actavis has spread its drug-manufacturing operations over 11 countries, seeking to reduce costs by making drugs in places such as Bulgaria and Malta. Wessman says it's important to have strong local managers to help build sales and credibility in their respective countries.

And despite intense competition in the U.S., the world's largest market, Wessman says U.S. profit margins are comparable to those in Eastern and Central Europe. By the second quarter of 2006, North America accounted for 32% of sales, while Central Europe, Eastern Europe and Asia combined for 38%.

Actavis saw the potential for acquisitions in low-cost countries much earlier than most competitors, including Barr, which cites Pliva's attractive production costs, and

Mylan Laboratories

(MYL) - Get Report

, which recently bid for as much as 71.5% of the India-based company

Matrix

.

Unlike some competitors, Wessman says, Actavis doesn't want a mixture of proprietary drugs and generic drugs. Unlike some companies that specialize in a few treatment areas, Actavis needs to be involved in most therapeutics categories, he says. Wessman fears that a limited portfolio of products would increase the risk to Actavis, which now sells more than 650 drugs worldwide.

Although it must compete with giants such as

Teva Pharmaceutical Industries

(TEVA) - Get Report

and the

Sandoz

unit of

Novartis

(NVS) - Get Report

, Actavis has been able to grow, thanks to a steady courtship of financial institutions.

"When we talk of

financial reserves, we are not out of fuel," says Wessman. The bid for Pliva, for example, was backed by commitments from many sources, including JPMorgan, HSBC, UBS and two big Icelandic banks.

Actavis is publicly traded in Iceland, and U.S. investors can buy shares in Iceland by dealing with an authorized Icelandic bank. Although a listing in a bigger exchange might be desirable in the future, Wessman says it's not a top priority now. "We have more need to build up our business than to list in London or New York," he says.