Vectura-SkyePharma merger could be just the start
The merger between Vectura and SkyePharma makes a lot of sense: their technologies are complementary, the split between marketed and pipeline products will be more balanced and the combined group will exploit economies of scale and cut costs. The all-stock deal values SkyePharma at 410.15p per share, around £441m ($622m) in all, a measly-seeming 4.2% premium to yesterday’s closing price.
SkyePharma CFO Andrew Derodra tells EP Vantage that this is not the right way to think about the deal. SkyePharma shareholders will end up with 42% of the combined company, and he says that this is a bargain as “the three-day average share price for both companies would imply that SkyePharma would get a 35% share – a significant additional share of the cake.”
The combined company will have a strong portfolio encompassing all three main types of inhaler. Both have dry powder inhalers, SkyePharma brings its pressurised metered-dose inhaler technology and Vectura has developed nebulisation devices.
It will also see a pleasing balance between marketed products and those in R&D: SkyePharma has 21 products on the market, Mr Derodra says, many of which have launched in the last three or four years “so they have a lot of believable growth to come”. But it only has six in its pipeline, the most advanced of which is in phase II.
Vectura, conversely, has nine drugs in phase II and five in phase III. The idea is that these will take over as growth drivers in future – hopes are high for its generic form of GlaxoSmithKline’s Advair, for example, which could gain US approval in the middle of next year and take advantage of payers’ growing resistance to high-priced branded pharmaceuticals.
The transaction is partly about building scale and cutting costs. The combined business will have a market cap of more than £1bn and management is convinced shareholders will flock to the group, expanding it further. Cuts will come in the form of job losses – the group expects to let around 61 of 400 workers go, saving £8m by 2018 – with a further £2m of savings coming from procurement and removing duplicated costs.
SkyePharma has had another good year: 2015 operating revenues, at £95.9m, Ebitda of £34.3m and net profit of £26.3m all beat analyst expectations. All this might make investors wonder why SkyePharma did not hold out for more.
Perhaps SkyePharma’s strategic direction was not what its shareholders wanted. Its chief executive, Peter Grant, will not be a part of the new company, which will be run by Vectura’s chief exec James Ward-Lilley.
Mr Ward-Lilley has been in his current role for less than a year having been at AstraZeneca for nearly 30; his appointment was perhaps a part of Vectura’s stated ambition to become a leading speciality pharma company. If so, he has made a good start – and there will likely be more to follow. Bruno Angelici, Vectura’s chairman, said on the conference call that the merger would give it a stronger cash flow, allowing it to “consider attractive strategic opportunities”.
The new company will find itself “in the middle of the FTSE 250,” Mr Derodra says. It might not be content to stay there.