It might not be sexy, but perhaps that is the point. Through two sizeable acquisitions Fresenius has managed to extend its reach substantially in the field of complex generic medicines and to add new distribution channels, and objections to the prices paid are hard to find.
With valuations in many segments of pharma and biotech still vastly inflated, the less racy side of the sector has yielded the last few billion dollar deals. Transactions will always be easier to close when both sides are prepared to take a pragmatic view on price, something that those waiting for the big name M&A targets to fall should bear in mind.
While Fresenius's purchase of Merck KGaA’s biosimilar operations was a surprise the takeout of Akorn was well trailed, and at $34 a share includes a healthy 36% premium to the US company’s price before news leaked to the press. Including debt the deal is worth $4.8bn, and the sellside response has been widely positive. Fresenius’s shares shifted very little on either the speculation or confirmation of the takeout, suggesting that investors are at the very least unperturbed.
The Akorn business encompasses prescription and over-the-counter products like ear and eye preparations as well as injected generics; it has a queue of 85 products approaching the US regulator and channels in place to sell directly to retail pharmacies and physician offices. Fresenius Kabi, the division that focuses on chronically and critically ill patients and into which these two deals will be incorporated, is already strong in the US hospital network.
Through this move Fresenius is also taking a long view – its new distribution networks will stand it in good stead should the biosimilar venture bear fruit.
Working to a ceiling
With the Merck biosimilars move Fresenius has shown more caution: €170m ($186m) will be paid up front, with €500m in developmental milestones on the table. The company has said it will not spend more than €1.4bn on the deal until 2022 – when it assumes the venture will break even – a figure that includes the sums to be paid to Merck.
A full picture of the biosimilars portfolio is being kept under wraps, although it is thought to encompass four molecules, the most advanced being a Humira knock-off codenamed MSB11022; two phase III studies are under way in psoriasis and rheumatoid arthritis, and data in the former indication are feasibly already available.
Fresenius expects its first biosimilar sales in 2019, presumably from this project, and has forecast “triple-digit € million” from 2023. This could be considered an ambitious target considering that the biosimilars market is still in its infancy, and the company’s pledge of financial restraint in this space is no doubt a nod to this.
Caution is warranted – the exit of Shire from this field last year shows that few regard it a market just to dabble in (Shire cedes biosimilar field, September 28, 2016). Still, even if the biosimilars venture comes to nothing, the Akorn buy works without this angle down the road.
Emerging at pace
Every company declares its adherence to strict financial discipline, and Fresenius was no exception today, though in the case of Akorn it was probably helped by a weakened peer group. As Leerink analysts point out, Perrigo, Endo and Teva could under normal circumstances be considered rival bidders but are currently mired in their own travails, largely created by overpaying for acquisitions.
Interestingly, Fresenius made it very clear that there are no plans to venture into novel drug development, the risks and valuations that come with this space being a step too far.