Fresenius Kabi To Buy Akorn; To Acquire Merck KGaA's Biosimilars Business

(RTTNews) - Fresenius Kabi announced it has agreed to acquire Akorn (AKRX), a U.S.-based manufacturer and marketer of prescription and over-the-counter pharmaceutical products, for approximately $4.3 billion, or $34.00 a share, plus the assumption of approximately $450 million of debt. Akorn's largest shareholder, who beneficially controls approximately 25% of its shares, has committed to supporting the transaction. Closing is expected by early 2018.

Akorn is a specialty generic pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. Akorn manufactures ophthalmic, injectable and niche sterile and non-sterile harmaceuticals. The company employs more than 2,000 people and has three R&D centers and five manufacturing facilities in the United States, Switzerland and India. Akorn also announced that based on a preliminary review of first-quarter results, it is reaffirming previously announced 2017 guidance, excluding any one-time costs related to the transaction with Fresenius Kabi.

Fresenius expects the acquisition to be accretive to Group net income and Group EPS in 2018, excluding integration costs, and to contribute positively from 2019 onwards including integration costs. Mid-term, Fresenius Kabi expects the acquisition to create cost and growth synergies of approximately $100 million p.a. before tax. Fresenius Kabi expects a progressive ramp-up of those synergies which will be achieved by integrating and modernizing Akorn's production network and by combining other functions. For the period from 2018 to 2022, Fresenius Kabi expects integration costs of approximately $140 million before tax in total. The integration costs are projected to be frontloaded with the major impact in 2018.

John Ducker, CEO of Fresenius Kabi USA, stated: "Akorn brings to Fresenius Kabi specialized expertise in development, manufacturing and marketing of alternate dosage forms, as well as access to new customer segments like retail, ophthalmology and veterinary practices. Its pipeline is also impressive, with approximately 85 ANDAs filed and pending with the FDA and dozens more in development."

Separately, Fresenius and Merck KGaA announced that Fresenius Kabi will acquire Merck's biosimilars business, which comprises the entire development pipeline and an experienced team of more than 70 employees located in Aubonne and Vevey, Switzerland. The product pipeline has a focus on oncology and autoimmune diseases. The purchase price will be up to 670 million euros. Thereof, 170 million euros will be paid in cash upon closing. Approximately 500 million euros are milestone payments strictly tied to achievements of development targets. From 2023 onwards, the acquisition is expected to be significantly accretive to Group net income and Group EPS.

Fresenius Kabi expects first sales towards the end of 2019 and estimates to ramp-up the business to high triple-digit million sales from 2023 onwards based on the current product development schedule. Fresenius Kabi has agreed to pay single digit percentage royalties to Merck based on sales. Analytical testing, clinical studies, quality requirements specific to biosimilars as well as marketing and sales activities are expected to result in increased costs for Fresenius Kabi. The total expected cash-out and self-imposed investment ceiling is estimated to be up to 1.4 billion euros until projected EBITDA break-even in 2022.

Fresenius said, both transactions combined are expected to be neutral to Group net income and EPS by 2020 and accretive from 2021 onwards. The company confirmed its 2020 earnings target range of 2.4 to 2.7 billion euros. Before amortization and before integration costs, both transactions combined are projected to be neutral to Group net income and EPS by 2018 and to contribute positively from 2019 onwards.