Hikma picks Boehringer generics business in big US play

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Hikma Pharmaceuticals joined the speciality-generics M&A party today with its biggest transaction yet. The $2.7bn takeover of Boehringer Ingelheim’s Roxane Laboratories division will make it the sixth-largest generics company in the US by revenue and expand its non-injectables business.

The Jordan-based group has been quiet relative to peers like Valeant, Endo International and the former Actavis, but has made a big statement about its strategy with the deal announced today. “We do believe that the US generics market is the best market that you can be in right now – it gives you the best possibility for growth,” its chief executive, Said Darwazah, told EP Vantage today.

Hikma will pay $1.2bn in cash and issue 40 million shares to Boehringer, giving the private German company a 17% stake; another $125m in milestone payments is also possible.

In return, the London-listed generics company gets an asset that will roughly double its US revenue – it forecasts that Roxane will add $725-775m in 2017, compared with the $763m Hikma reported in 2014. Hikma said the deal would be accretive in 2016.

Value

Stifel analyst Max Herrmann said the price of 10 times 2017 Ebitda made it appear like good value. By comparison, Teva Pharmaceutical Industries yesterday announced the acquisition of Allergan’s generics business at 15 times 2016 Ebidta.

Adding more than $700m in US revenues will make this a transformative deal. In 2014, the Middle East/North Africa region was nearly as significant as the US for Hikma at $640m in sales.

Moreover, the buyout offers diversity. Most of its US sales – $548m in 2014 – are in injectables, and the Roxane acquisition brings in more oral, liquid, spray and sublingual tablet formulation products.

Investors supported the deal, sending Hikma shares up 10% to £22.78 in afternoon trading.

More dealmaking?

The transaction was the second one struck between Boehringer and Hikma, the first having been last year's bid for Bedford Laboratories, which at $300m was the generics group’s previous biggest M&A deal.

With Bedford came the troubled Ben Venue Laboratories facility outside Cleveland, Ohio, which Boehringer had shut down owing to manufacturing deficiencies. Mr Darwazah said Hikma has transferred many of the products made at Ben Venue to other facilities along with equipment, but would not say whether it would restart operations.

The Bedford buyout was not, however, stage one of a two-stage Boehringer deal, he said, describing the Roxane transaction as a competitive process that involved other bidders.

As with all players in the speciality and generics space, Hikma is looking for more deals, Mr Darwazah said. It does not need to bulk up to avoid a takeout, he said, as 30% of it is held by family. However, the group has held global aspirations ever since its first entry into the US market in 1991 with the buyout of West-Ward Pharmaceutical.

Emerging markets are a target. A “green fields” strategy has driven new facilities in Ethiopia and Kazakhstan to serve sub-Saharan Africa and former Soviet countries, and Hikma is considering a similar approach in Russia and Indonesia, Mr Darwazah said.

In Europe the approach is different. “I’m looking at small businesses in Europe that are having financial problems but have good technologies, so we can take them from small boutique companies into global operations,” he said.

Growth in the generics and speciality game lies as much on dealmaking as on innovation, if not more so, so more transactions will be in the offing. But, since Hikma is not in the buy-or-be-bought game, it could be a while before another billion-dollar deal comes along.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com or follow @ByJonGardner on Twitter

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