Global Insight Perspective | |
Significance | Fresenius will acquire a majority stake in U.S. company APP pharmaceuticals in a deal that could be worth up to US$5.6 billion. |
Implications | The acquisition opens the door to new market opportunities for both companies, as APP Pharmaceuticals has a strong presence in the North American market while Fresenius is implanted in Europe, Latin America and Asia Pacific. |
Outlook | The deal should result in fresh growth opportunities for the two merger partners as their respective products will be launched onto new markets. In the bigger picture, the deal, which is reminiscent of the acquisition of generic-drug maker Ranbaxy by Japanese branded-pharma producer, Daiichi-Sankyo, could contribute to the setting of a trend. |
Fresenius Kabi, a unit of the German healthcare group Fresenius and I.V. drug specialist APP Pharmaceuticals (U.S.) have entered a definitive merger agreement estimated by the two companies to be worth an initial US$3.7 billion. Under the terms of the agreement, Fresenius Kabi will acquire all of APP Pharmaceuticals' outstanding shares at the individual price tag of US$23 per share. If APP reaches pre-agreed financial targets between 2008 and 2011, Fresenius will pay an additional Contingent Value Right (CVR) that could reach up to US$6 per share in 2011. According to APP Pharmaceuticals, Fresenius will also clear the U.S. company's debts, which are worth US$940 million.
APP Pharmaceuticals specialises in intravenous generic drugs and supplies hospitals in the United States and Canada. The company has a portfolio of over 100 injectable drugs that span therapeutic classes such as oncology, anti-infective, anaesthesia, analgesia, and intensive care. The U.S. company also has three manufacturing plants. APP Pharmaceuticals will be integrated into Fresenius Kabi's U.S. subsidiary. In 2007, APP Pharmaceuticals' sales stood at US$647 million, an 11% year-on-year increase. The company forecasts 2008 revenues in the range of US$730-750 million.
Fresenius Kabi specialises in infusion therapy and clinical nutrition. Its products span across therapeutic indications such as infusion for fluid substitution, blood-volume expansion, parenteral and enteral nutrition. The company has a well-developed presence in the European, Latin American, and Asia-Pacific markets. Its 2007 global sales stood at 2 billion euro (US$3.2 billion). Parent-company Fresenius focuses on dialysis products, hospital care, and outpatient medical care.
Outlook and implications
The deal is actually worth substantially more than the announced price tag. The clearing of APP Pharmaceuticals' debt brings it to US$4.64 billion. If the full CVR is realised, then the deal will be worth US$5.6 billion. There is significant synergy between the two companies' area of expertise, and the deal will allow both of them to gain a foothold in geographic markets that they did not previously cover. Indeed, Fresenius Kabi gains entry to the U.S. market as the leader in injectable generic drugs. The German company will be able to take advantage of APP Pharmaceuticals' commercial network and a dedicated field force for launching its own products on the U.S. hospital market. On the other hand, Fresenius Kabi's well-developed commercial and sales force in the European, Latin American ,and Asia-Pacific markets will allow for APP Pharmaceuticals' products to gain a foothold there. This creates fresh opportunities for each company's products, which should generate substantial growth for both of their products. In addition, APP Pharmaceuticals' has a strong record of bringing injectable generics to the market. The reduced costs of those generics over branded products should continue to fuel growth in the North American market and should also be attractive to most European healthcare providers.
Fresenius Kabi is no stranger to targeted acquisitions in order to promote growth and expand in new geographic areas. Indeed, the German company recently acquired Indian oncology specialist Dabur Pharma (see Germany - India: April 2008: Fresenius Kabi Acquires Majority Stake in Dabur Pharma). Prior to this, Fresenius acquired Italian company Ribbon to gain control of its range of IV anti-infectives. The APP Pharmceuticals' acquisition is not dissimilar to the Ranbaxy (India) acquisition by Japanese Daiichi-Sankyo (see World: 13 June 2008: Potential Targets Emerge as Daiichi-Ranbaxy Deal Shakes Up Rankings in Global Generic Drug Industry).