Kedrion could reap rewards of Grifols deal

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After positive pronouncements from the Federal Trade Commission (FTC), Grifols looks set to succeed where its larger rival CSL failed. The Spanish blood products group yesterday inched closer to closing its deal to buy rival Talecris Biotherapeutics following publication of a consent agreement with the Bureau of Competition, setting out the conditions for the $4bn merger.

Key to the eventual green light is the purchase of certain assets by Italian company Kedrion, which will buy one of Grifols' US manufacturing facilities, a factor VIII business, two plasma collection centres and also sign up to a contract manufacturing agreement allowing Grifols to purify Kedrion’s plasma. Such additions to its business could well be the springboard for Kedrion to reconsider a public float.

Testing the waters again

Kedrion pulled its scheduled IPO in July 2008, blaming market conditions that reined in valuations (Kedrion decision adds to 2008 IPO blues, July 15, 2008). But that was then and this is now and the intervening years have seen both the markets recover and the number of IPOs in the sector gradually rise, indicating that the environment is more favourable, albeit not entirely attractive.

Kedrion itself now looks more attractive. The potential addition of Grifols' manufacturing facility, collection centres and the manufacturing agreement that could increase sales of certain blood products in the US, should add scale, which could make investors sit up and take notice if it were to take the plunge again.

As the table below shows the group is still one of the smaller players in the blood space and as such adding product and facilities will be beneficial.

Blood Plasma Product Companies - total pharmaceutical sales  Sales ($m) CAGR (10-16) Market Cap ($m)
2010 2016
 Baxter International 8,056 11,015 5% 33,055
 CSL 4,161 7,526 10% 18,780
 Octapharma 1,509 2,433 8% Private
 Talecris Biotherapeutics 1,459 2,043 6% 3,627 
 Grifols 1,025 1,546 7% 4,095
 Biotest 519 776 7% 424
 Kedrion 298 386 4% Private

How Kedrion will fund the purchase of Grifols' assets and how much they are worth is unclear, but if existing investors are putting their hands in their pockets again, having waited almost three years past their scheduled exit, they will want a return on their money and soon. An exit in the form of an IPO could be a viable option, particularly given the regulatory constraints to trade sales within the blood products market.

Improving outlook

What might also sway the group to go down the IPO road again is that the fundamentals in the blood market appear to be improving, with the fears of overstocking in the sector subsiding. Baxter’s annual results showing double digit sales gains could offer encouragement, if it were needed.

If Kedrion does decide to launch itself on the public market the fact that it is not involved in risky drug discovery and is profitable, recording a 10% net profit margin in 2009, should encourage potential investors. The group’s manufacturing deal with Grifols adding volume in the more lucrative areas of the blood market, IVIG and the US, should also play well. 

So when the FTC does makes its final decision on the merger between Grifols and Talecris, an event that is expected sometime in June, there will be a third company striking a potentially transformational deal.

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