Agreement covers four marketed and two pipeline drugs.

Watson Pharmaceuticals is purchasing a portfolio of generic pharmaceuticals that are being divested as a result of the $540 million merger between Perrigo and Paddock Laboratories. The deal covers six products including four FDA-approved drugs and two development-stage candidates.

Perrigo closed its acquisition of Paddock today and is selling the products to Watson as a result of FTC’s review of the merger. Total revenues of the four marketed divested products represent less than 2% of the combined entities’ total fiscal year 2011 revenues. Perrigo will supply the products to Watson under a manufacturing and supply agreement until manufacturing is transferred to Watson or a third party.

Deals over the past two years has seen Watson ramping up its licensing and acquisition of generic products and companies focused on this segment. In May Watson picked up Greece-based generic drug firm Specifar for €400 million in cash and certain contingent consideration. Specifar reported revenues of about €85 million in 2010 and currently has about 400 marketing authorizations licensed out to third parties for sale in 36 countries, primarily in Europe. Its pipeline includes eight products currently filed in the EU.

In March 2010, through the $1.75 billion acquisition of Arrow Group, Watson gained a 36% stake in Eden Biodesign, which will provide operational expertise and manufacturing capabilities for generic biologics. The takeover also gave Watson more than 100 molecules marketed in 20 countries including Canada, France, and the U.K.

Perrigo as well is fortifying its generic product offerings. It expects to receive a tax benefit of about $98 million generated from the acquisition of Paddock’s assets. In January, when Perrigo initially reported the purchase of Paddock, chairman and CEO Joseph C. Papa said, “This acquisition is another important step forward in executing Perrigo’s strategy to expand our specialty portfolio of generic Rx products. It adds incremental scale as well as excellent development and manufacturing capabilities across a spectrum of niche dosage forms. It solidifies Perrigo’s leading position in the extended topical space and strengthens our ability to offer new products into the market.”

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