Global Insight Perspective | |
Significance | The final bill for King Pharma is slightly more than the previous figure of US$1.43 billion which Alpharma's management had rejected earlier this year. The agreement will see the extension of the tender offer initiated by King Pharma in October, 2008. |
Implications | In terms of immediate synergies, the two firms will find a common focus on pain management, and potential rationalisation on expenditure is expected for existing products leading to cost savings. |
Outlook | The acquisition is expected to be completed by year-end, allowing King Pharma to initiate an integration phase. The main focus in the forthcoming years will be on Alpharma's promising pipeline products. |
Alpharma Relents
U.S. pharma firms Alpharma and King Pharma have entered into a definitive merger agreement allowing King Pharma to acquire all of the outstanding shares of Class A common stock in Alpharma for US$37 per share in cash, for a total equity value of approximately US$1.6 billion. The move will see King Pharma extend its current tender offer from 21 November 2008 to be extended until 19 December 2008. The price tag for Alpharma represents a 12 % premium over the initial proposal extended by King Pharma in August. Then, the firm looked at a total financial consideration of US$1.43 billion at US$33 per share. The combination of King Pharma and Alpharma is expected to create strengths as a speciality pharmaceutical firm with a wider scale. King Pharma's chairman, Brian A Markison, indicated that the deal will position the two firms better in the current pharmaceutical market.
The acquisition will see King Pharma inherit two businesses from Alpharma: Animal Health and Pharmaceutical. King Pharma will look to gain support for the commercialisation of Remoxy (long-acting oral oxycodone), as well as enhanced revenues from Alpharma's launch of Embeda (morphine sulphate extended-release with sequestered naltrexone hydrochloride), from the integrated sales force. The prospects of the two drugs, both close to market introduction, lie in their resistance to or deterrence of common methods of opioid misuse. King Pharmaceuticals has indicated that with the transaction completed by the end of 2008, potential cost savings from general and administration and research and development costs, as well as rationalising marketing divisions, will be accomplished by 2010-end. The firm has suggested achieving synergies of US$50-70 million in that period.
Outlook and Implications
The transaction announcement was anticipated by IHS Global Insight and comes at a time when King Pharma is expected to face some challenges in its topline growth. However, since the first offer was initiated in August 2008, the path has not been a smooth one for King Pharma. The firm has aggressively pursued the offer, recognising the need to address forthcoming pressures related to its top earning products. Some damage to its topline has already surfaced, with the generic competition in its cardiovascular drug Altace (ramipril), causing total revenues to dip by 28.8% year-on-year during the third quarter ended 30 September 2008, to US$388 million from US$545 million in the corresponding period last year.
In contrast to King Pharma's dismal topline figures, Alpharma has ended the third quarter and nine months ended 30 September 2008 with a revenue growth of 32% and 30% respectively. The firm expects to end 2008 with an equally strong performance in the fourth quarter. Alpharma will bring in two growing branded franchises in the United States in the pain drugs market: morphine-based, extended-release Kadian and the NSAID (non-steroidal anti-inflammmatory drug) diclofenac epolamine Flector patch. Alpharma will also add Embeda capsules, which have a priority review from the U.S. FDA and are expected to be launched in the first quarter of 2009. The additions to King Pharma's marketed and research pipelines are likely to begin influencing the firm's financials by mid 2009.
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