Barr is highlighting its complementary product portfolio and business model in its efforts to ward off competition from Actavis to acquire Pliva.

"We believe that Barr represents the best potential suitor for Pliva," the firm said in a June 30 release.

In addition to capital, "Barr offers a number of other strengths that differentiate us from other potential acquirers, including: the complementary nature of our two businesses; the limited overlap in products and markets; our commitment to maintain investment in Pliva facilities; and our plan to headquarter our European operations in Croatia."

Barr emphasized that its U.S. regulatory, legal and marketing expertise would complement the Zagreb, Croatia-based firm's current focus on the European market.

Barr raised its bid for Pliva July 30 to a total cash consideration of $133.34 (HRK 755) per share, beating a rival offer from Actavis for $129.81 (HRK 735) per share. Both offers translate to roughly $2.3 bil.

When Barr originally announced its intention to buy Pliva, CEO Bruce Downey pointed to Pliva's European infrastructure and biogenerics capability as the main rationale behind the merger.

Barr's acquisition of Pliva would position the company to become a leading biogenerics manufacturer and create a pharmaceutical company with combined sales of approximately $2.5 bil., Downey said during a June 27 conference call.

"One of the greatest assets of the company that we're acquiring is their very significant commitment to biogenerics," he stated.

"In one step, this solidifies our position as a world leader in biogenerics, adding the scientific R&D program and the injectable manufacturing capabilities that complement our legal and regulatory capabilities, so that combined, we will clearly be...the leader in biogenerics worldwide," Downey said.

Barr and Pliva have already entered into an agreement to develop and market one biosimilar product. In March 2005, the companies announced a deal to develop a generic granulocyte colony stimulating factor (GCSF), which they hope to market in the U.S. and Canada as a generic version of Amgen's Neupogen (filgrastim).

Pliva is also developing a follow-on erythropoietin product, which it expects to launch in certain less regulated European countries - including Croatia - later this year.

"In the long-term, biogenerics may be the number one asset" of Pliva, Downey said.

However, he noted, "I don't think we pursued the deal because we expected it would help us expedite legislative change that would make a more favorable regulatory environment for biogenerics." Development of a framework for approval of follow-on versions of the vast majority of biologics has been stalled in the U.S. and will likely require legislative action (¹ Also see "FDA Clears Omnitrope; Product Is Not The Process, But Nor Is It A Pathway" - Pink Sheet, 5 June, 2006., p. 3).

"I do think the consolidation of these capabilities into Barr will allow us to be clearly a leader when that eventuality takes place," he added. "Whether it's Pliva or Sandoz or Teva or other companies, selling these products outside the U.S. certainly exposes the big lie that you can't genericize these products. You can. It's being done, and eventually, the U.S. will catch on."

In the shorter term, the acquisition of Pliva would also give Barr the infrastructure to launch products in Europe from its U.S. branded portfolio.

"We've been almost principally - almost exclusively - a U.S.-based company," Downey noted.

"The acquisition here will give us over $600 mil. in sales in Europe, a presence in 30 countries, sales forces in all of those countries to market the products and...the ability to take products from Barr's portfolio into those markets," the exec stated.

Among the potential drugs Barr would consider launching in Europe are the women's health products marketed by its Duramed branded unit including the extended-release oral contraceptives Seasonale and Seasonique and the hormone therapy Enjuvia .

The merger would also provide manufacturing, R&D and tax savings, Barr said. The company said it expects the transaction to be neutral to slightly accretive in fiscal 2007 (ending June 30) and to result in synergies of $50 mil. in fiscal 2008 and $100 mil. in fiscal 2009.

Prior to Actavis' bid, Barr appeared to have a merger agreement with Pliva wrapped up. Barr and Pliva said June 27 that Pliva's supervisory board had approved Barr's proposal over offers from several rivals, including Actavis.

In response to the increased offers, Pliva issued a statement recommending that shareholders take no action in relation to their shares in Pliva.

"Both the offer announced by Barr and the proposal announced by Actavis present potential antitrust issues that will need to be resolved with the U.S. antitrust agencies," Pliva said. "We believe that such issues are capable of satisfactory resolution in both cases, and that the time required for such resolution is likely to be similar for each."

Nonetheless, in increasing its bid, Actavis also announced that it had already secured 20.4% ownership of outstanding Pliva shares. Meanwhile, Barr noted that it is constrained from making private purchases of Pliva shares because of U.S. antitrust regulations.

Under Croatian takeover law, a party that acquires over 25% of voting shares is obligated to immediately inform the issuer, the public and Croatian regulatory agencies and publish a mandatory takeover bid, Pliva said.

Whereas Barr is touting its expertise in the U.S. market, Actavis is highlighting its existing presence in the European market. Actavis has quickly risen to a key player in the European generics market with a number of major acquisitions over the last year (² Also see "Actavis Buying Spree Includes Alpharma In Race For Generic Top Three" - Pink Sheet, 24 October, 2005., p. 14).

The firm noted its takeover of Pliva would create the third largest generics company in the world and maintained that Actavis' strong position in Europe would allow the combined entity to take advantage of more growth synergies than a Barr-Pliva combination.

Actavis said it expects to realize slightly higher synergies than Barr projected: $63.9 mil. (€50 mil.) in 2007 and $127.8 mil. (€100 mil.) in 2008 and beyond.

In addition, Actavis said it would retain the Pliva name in Croatia and enhance its manufacturing and R&D capabilities in the region, providing more opportunities for Pliva employees in Croatia.

The company also said it would seek a stock listing in Zagreb to encourage ongoing support from the investment community in Croatia.

Barr’s Rationale For Pliva Merger: Business Synergy, Biogenerics Leadership

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