Warner Chilcott Limited

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Warner Chilcott Limited

22 Victoria Street
Hamilton, HM12
Bermuda
Telephone: (441) 295-2244
Fax: (441) 295-3283
Web site: http://www.warnerchilcott.com

Public Company
Incorporated: 1996 as Warner Chilcott, PLC
Employees: 997
Sales: $515.3 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: WCRX
NAIC: 325412 Pharmaceutical Preparation Manufacturing

Warner Chilcott Limited is the holding company for Warner Chilcott, Inc., a New Jersey-based manufacturer of pharmaceutical products. The company focuses on selling branded prescription pharmaceutical products that address women's healthcare and dermatology needs in the United States. Warner Chilcott's branded products include oral contraceptives Loestrin and Ovcon; Sarafem, a treatment for severe premenstrual syndrome; and hormone replacement therapies Femring and Femhrt. The company's dermatology products include Doryx for severe acne and Dovonex and Taclonex for psoriasis.

ORIGINS

There were numerous corporate entities that influenced Warner Chilcott during its first two decades of existence, each contributing to the composition of the company at the beginning of the 21st century. The company began as a division of the giant pharmaceutical concern Warner-Lambert Co., which formed a generic pharmaceutical business in 1987 under the name Warner Chilcott Laboratories. The division, based in Morris Plains, New Jersey, remained under Warner Lambert's control for nearly a decade, parlaying the massive financial coffers of its parent into an extensive marketing and distribution network.

A change in corporate strategy by Warner-Lambert in the mid-1990s led to the first of several changes in ownership of the generic pharmaceutical business. Warner-Lambert decided to concentrate on its core interests, a decision that put Warner Chilcott Laboratories on the auction block in 1996. At the time, the division was marketing roughly 70 generic pharmaceuticals, the most valuable of which were gemfibrozil, the generic equivalent of Lopid (used to lower triglyceride levels in the blood) and minocycline, an antibiotic sold under the trade name Minocin. Warner-Lambert was parting with a $125 million-in-sales business by selling Warner Chilcott Laboratories, but the loss represented only a fraction of the pharmaceutical company's total business (four years later, it merged with Pfizer Inc., creating a $28 billion-in-sales pharmaceutical behemoth). For smaller pharmaceutical companies eyeing Warner Chilcott Laboratories' marketing and distribution network, the worth of the division held far greater value in delivering commercial success. Warner-Lambert could forsake its generic pharmaceutical business without incurring any discernible damage to its business; for an Irish pharmaceutical concern intent on entering the U.S. market, the addition of Warner Chilcott Laboratories became a defining moment in its history.

1996: PURCHASE BY AN OVERSEAS SUITOR

In 1969, a company was formed that figured prominently in Warner Chilcott's corporate lineage. Elan Corporation, based in Dublin, Ireland, entered the pharmaceutical business 18 years before the Warner Chilcott Laboratories division was formed, devoting the years to establishing itself as a developer of controlled-absorption drug delivery systems. Elan's products were designed to improve and to control the absorption and utilization by the human body of active pharmaceutical compounds. Existing compounds using Elan's delivery system could be administered less frequently and with reduced dosages, limiting the side effects of the administered drug. While developing its drug delivery systems, Elan converted to public ownership in 1984 and a decade later helped finance the establishment of another Ireland-based company, Nalé Laboratories, PLC. Nalé's formation in 1994 reflected Elan's desire to create a company focused on developing and formulating complex generic medicines nearing patent expiration, when trade name drugs began to give way to more inexpensive, generic equivalents. Nalé jumped at the chance to acquire Warner-Lambert's generic pharmaceutical division, attracted by the business's marketing and distribution network and the entry it provided into the world's largest and most lucrative pharmaceutical market. Nalé acquired the assets in mid-1996, a deal that turned Warner Chilcott Laboratories into a Nalé subsidiary named Warner Chilcott Inc. Shortly after the acquisition was completed, its importance was reaffirmed when Nalé changed its name to Warner Chilcott, PLC.

The newly constituted Warner Chilcott began the second chapter in its history as an Ireland-based concern that ranked as one of the ten largest U.S. generic pharmaceutical companies. The company's presence in the United States represented its greatest strength, but for several more years it would continue to operate as an Irish company operating mainly in the United States. Another change in ownership occurred four years after the company was divested by Warner-Lambert and spun off from Elan, a transaction that defined its role in the pharmaceutical industry for the years to follow. In September 2000, the company was purchased by Northern Ireland-based Galen Holdings, PLC, a company founded by a former pharmacist and sales representative for Glaxo Inc. (later GlaxoSmithKline, PLC) named Allen McClay. McClay founded the company to sell iron vitamin supplements, but his modestly sized business developed into a much larger concern as a specialist in women's healthcare. When Galen acquired Warner Chilcott, the Ulster-based company's operations were divided into two business segments, pharmaceutical products and services. The pharmaceutical side concentrated its efforts on analgesic, gastrointestinal, and antibiotic products. The services side focused on manufacturing and distributing materials for clinical trials.

COMPANY PERSPECTIVES

Our strategy is to: focus on smaller but lucrative markets; drive organic growth by employing our precision marketing techniques; develop and market new products, proprietary product improvements and new and enhanced dosage forms; and selectively review potential product in-licensing, acquisition and partnership opportunities within our franchises.

The acquisition of Warner Chilcott had a profound effect on Galen's business. The all-stock deal, valued at £190 million, gave the company the infrastructure to market its products in the United States, notably a product it was preparing to launch at the time of the acquisition. After introducing Regurin, a treatment for incontinence, Galen was ready to launch an intravaginal rubber ring that slowly released hormone replacement therapy into the bodies of menopausal women. "Strategically," Galen's chief executive officer, John King, said in a May 5, 2000, interview with the Guardian, "this is an extremely important move for us. It gives us the opportunity to commercialize our rings in the largest market in the world." The importance of the acquisition was underscored by King's decision to vacate his post to make room for Warner Chilcott's leader, Roger Boissonneault. King became chairman of the merged companies, while Boissonneault assumed the responsibilities of chief executive officer. Boissonneault represented one constant in the swirl of ownership changes experienced by Warner Chilcott. His association with the company began with the formation of the Warner Chilcott Laboratories division by Warner-Lambert, where Boissonneault was employed between 1976 and 1996. When the division was divested by Warner-Lambert in 1996, Boissonneault was appointed its president and chief operating officer, taking on a leadership position that he would retain after Galen acquired the company.

When Nalé acquired Warner Chilcott, the acquisition changed the scope and name of the company, engulfing the Irish firm's identity and business. Warner Chilcott would have the same effect on Galen, fundamentally changing the company's corporate strategy and eventually its identity. The financial gains to be realized in the United States convinced King and Boissonneault to focus Galen's efforts across the Atlantic Ocean, a decision that spelled the end for the company's involvement in Irish and U.K. markets. In May 2002, the company agreed to sell its clinical trials services business, announcing that it had decided to concentrate on its fast growing pharmaceuticals business. Characterized as a low profit-margin business, the services side of Galen was sold for roughly $190 million to companies controlled by Galen's founder, Allen McClay. In mid-2004, the company sold its U.K.-based pharmaceutical sales and marketing business, which generated approximately $33 million in annual revenue. McClay, again, picked up the assets offered for sale by Boissonneault. "For some time now," Boissonneault said in a May 8, 2004, interview with Chemist & Druggist, "we have indicated that we intend to focus our business primarily on the U.S. market where we have enjoyed excellent growth in recent years. We no longer see the United Kingdom and Irish markets as core and are pleased to sell these businesses." McClay, in the same issue of Chemist & Druggist, offered his reasons for acquiring what formerly had constituted the company he founded. "A lot of people," he explained, "are dependent on the company for jobs, and having been responsible for the creation of the thing, I don't want them to be facing unemployment. They are world class people and they have been slightly de-motivated over the last few years as Galen's focus switches to the United States."

The years immediately following Galen's acquisition of Warner Chilcott included divestitures that were offset by acquisitions. The company, focused on building its business around its 2000 acquisition, began to expand its portfolio of products. In late 2002, Eli Lilly & Co. announced it was selling Sarafem, the first product approved by the Food and Drug Administration (FDA) to treat severe premenstrual syndrome. The drug, which had been on the market for two years, was an antidepressant with the same chemical composition as Prozac, the most widely prescribed antidepressant in the history of the pharmaceutical industry. In January 2003, Galen acquired the rights to Sarafem for $295 million, an amount equivalent to the sales total Eli Lilly expected to generate during the ensuing three years. In March 2003, Galen struck again, negotiating a deal with Pfizer Inc. Galen paid Pfizer $359 million for three women's healthcare products: Estrostep, an oral contraceptive; Loestrin, another oral contraceptive; and Femhrt, a hormone replacement therapy. During the same month, Galen won FDA approval to market Femring, the first vaginal estrogen product to treat hot flashes and vaginal dryness associated with menopause.

The sweeping changes in Galen's business during the first years of the 21st century transformed the company's operations. A company once focused on Irish and U.K. markets severed its ties to its original business and threw itself into the U.S. market, using its acquisition of Warner Chilcott to lead it in a new direction. Galen's management acknowledged the profound changes that had occurred by changing the name of the company in 2004 to Warner Chilcott, a name more familiar than Galen to doctors practicing in the United States.

KEY DATES

1987:: Warner-Lambert Co. forms a generic pharmaceutical division named Warner Chilcott Laboratories.
1996:: Warner-Lambert sells its generic pharmaceutical division to Nalé Laboratories, PLC, a subsidiary of Dublin, Ireland-based Elan Corp.
2000:: Northern Ireland-based Galen Holdings, PLC acquires Warner Chilcott.
2002:: Galen sells its U.K.-based clinical service business.
2004:: Galen sells its U.K.-based pharmaceutical marketing business and changes its name to Warner Chilcott.
2005:: In a $3.1 billion deal, Warner Chilcott is acquired by a group of private equity firms.
2006:: Warner Chilcott completes its initial public offering of stock.

2005 BUYOUT LEADING TO A PUBLIC DEBUT IN 2006

Shortly after the name change, Warner Chilcott's pattern of attracting corporate suitors repeated itself. In late 2004, a bidding war for the pharmaceutical company began, pitting private equity firms led by DLJ Merchant Banking Partners and J.P. Morgan Partners against a group headed by Goldman Sachs & Co. and Bain Capital. After bids and counterbids, the DLJ Merchant and J.P. Morgan consortium prevailed, paying $3.1 billion to acquire Warner Chilcott in January 2005.

On a corporate level, one major event remained before Warner Chilcott celebrated its 20th anniversary. The group of firms led by DLJ Merchant and J.P. Morgan acquired the company for investment purposes, never intending to enter the pharmaceutical business in an active fashion. In September 2006, they cashed in their investment by taking Warner Chilcott public, directing the company to complete an initial public offering (IPO) of stock. In the IPO, 70.6 million shares were sold for $14.75 per share, raising slightly more than $1 billion—the second largest IPO in the United States in 2006, trailing only MasterCard's $2.4 billion public debut. What emerged after the IPO was Warner Chilcott Limited, a holding company based in Bermuda that conducted much of its business through Warner Chilcott, Inc., a company based in Rockaway, New Jersey. Boissonneault, as he had after the previous changes in ownership, remained in charge, presiding as Warner Chilcott's president and chief executive officer. In the years ahead, as the company settled into its new role as a publicly traded concern, growth and profitability depended on the ability of Boissonneault and his management team to add to the company's portfolio of pharmaceuticals and effectively market the stable of products. Instead of devoting its resources to research and development, the company, historically, had succeeded by excelling in sales and marketing and defending its patents aggressively. It was expected to adhere to the same strategic approach as it moved past its 20th anniversary and prepared to deepen its involvement in women's healthcare.

Jeffrey L. Covell