Acquisition enhances scale and will create platform for sustainable long-term growth
Expected to be accretive in 2016 and very strongly accretive thereafter
Hikma Pharmaceuticals PLC (“Hikma” or the “Company”) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY), the fast growing multinational pharmaceutical group, today announces that it has agreed to acquire Roxane Laboratories Inc. and Boehringer Ingelheim Roxane Inc. (together, “Roxane”), from Boehringer Ingelheim (“Boehringer”). Roxane is a well-established US specialty generics company with a highly differentiated product portfolio and best-in-class R&D capabilities.
Under the terms of the acquisition, on closing of the transaction Hikma will pay gross consideration of US$1.18 billion in cash and will issue 40 million new Hikma shares to Boehringer (representing approximately 16.71 per cent. of Hikma’s issued share capital immediately following closing and admission). Based on an agreed issue price for the new Hikma shares of £23.50 per share and the US:GBP exchange rate of 1.56:1, the aggregate value of the gross consideration payable on closing is approximately US$2.65 billion. Hikma has also agreed to make contingent cash payments of up to $125 million, subject to the achievement of certain performance milestones.
Transaction highlights
- Transforms Hikma’s position in the US generics market, establishing Hikma as the sixth largest company by revenue1
- Adds significant breadth to Hikma’s US portfolio, bringing 88 highly differentiated products in specialised and niche segments of the market, including oncology, respiratory, extended release and controlled substances
- Enhances Hikma’s pipeline adding 89 R&D projects, including 57 Paragraph IV products, 13 of which are first-to-file opportunities
- Creates sustainable long-term growth potential, adding Roxane’s highly experienced R&D team with a successful track record of bringing new and differentiated products to market
- Adds a best-in-class manufacturing facility with technologically complex formulation and alternative dosage form capabilities, including modified release solid orals and high potency formulations
- Boehringer’s approximate 16.71% equity stake reflects a shared conviction in the future growth potential of the Hikma Group and allows Boehringer to focus on growing its global core businesses
- Targeting Roxane revenue of $725 million to $775 million in 2017 and an EBITDA margin of around 35% over the medium-term
- Expected to be accretive to adjusted2 earnings per share (“EPS”) in 2016 and very strongly accretive to adjusted EPS thereafter
Said Darwazah, Chief Executive Officer of Hikma commented:
“This transaction has significant strategic value for us, transforming our position and scale in the US generics market. Roxane’s impressive portfolio, attractive pipeline and R&D expertise, focusing on higher value, niche and differentiated products, will create a platform for sustainable long-term growth. The acquisition also significantly expands our manufacturing capacity and technological capabilities. Roxane has an excellent team of highly skilled employees and we are very excited about the value they will bring to Hikma.
I am also very pleased to be further strengthening our relationship with Boehringer Ingelheim, building on the acquisition of Bedford Laboratories which we made in 2014. Their shared belief in the growth potential the Hikma Group is reflected in the equity stake that they are taking.”
Michael Raya, Chief Executive Officer of West-Ward, Hikma’s wholly-owned subsidiary in the US, said:
“Roxane is highly complementary to our existing US business. Today we are a market leader in generic injectables with a large and increasingly differentiated product portfolio. The acquisition of Roxane will significantly strengthen our non-injectables business, bringing a broad and diversified non-injectables portfolio, strong R&D capabilities and well-invested, state-of-the-art manufacturing facilities. With this acquisition, we will transform our US operations, becoming the sixth largest US generics provider and ensuring we have the ability to continue our strong trajectory of growth.”
Professor Andreas Barner, Chairman of the Board of Managing Directors of Boehringer Ingelheim commented:
“This is a great opportunity for Roxane to continue to build on its position in the global generics market as part of a fast growing company that has a primary focus on generics. Boehringer is confident that this transaction can better support the already successful Roxane business to realise its growth potential, domestically and internationally. Through this agreement, Boehringer Ingelheim will have a vested interest in Hikma and its significant potential, while focusing on growing our global core businesses as a research-driven pharmaceutical company.”
Information on Roxane
Roxane is a well-established US specialty generics company that was founded in 1885 as The Columbus Pharmaceutical Company. The business was purchased by Boehringer in 1978 at which point its name was changed to Roxane Laboratories, Inc. Today, Roxane has 1,360 employees supporting the development, manufacturing and marketing of Roxane products. Roxane has a highly differentiated product portfolio, comprising 88 different product offerings with particular strength in immediate-release solids as well as nasal spray, liquid and sub-lingual tablet products. Roxane has a strong pipeline of 89 projects in various stages of development, including 32 products which are currently filed with the FDA and 57 Paragraph IV products, and a consistent track-record of delivering new products to market.
The production of Roxane’s products occurs at its manufacturing site in Columbus, Ohio. The facility is located on a modern 875,000 square foot site and has broad production capabilities across solid, liquid, dry powder inhaler and nasal spray dosage forms, as well as being able to handle high-potency products, technically complex formulations, and controlled substance drugs. The facility has a strong track record in regulatory inspections. Roxane has co-located its R&D and marketing functions at the same site to enable an integrated and responsive approach to new market opportunities.
The gross assets of Roxane as at 31 December 2014 amounted to US$967 million. For the year ended 31 December 2014, profit before tax amounted to US$24 million. This information is extracted from unaudited, draft financial statements prepared in accordance with US GAAP. A shareholder circular to be prepared by Hikma for the purposes of, among other things, seeking shareholder approval for the transaction will include financial information on Roxane for the three years ended 31 December 2014 prepared under IFRS and in accordance with Hikma’s accounting policies. The Directors expect that the adjustments to the US GAAP gross assets and profit before tax will mainly arise in respect of policies for revenue recognition, inventories and fixed assets.
The results for the year ended 31 December 2014 were significantly impacted by a number of items that are not expected to recur, as well as ongoing costs in respect of Roxane’s investment in certain key products in its development pipeline which in 2014 amounted to $39 million.
Roxane has a strong and experienced management team with average industry experience of more than 25 years. Hikma expects that the strength and depth of the Roxane team, with strong commercial, operational, regulatory and development expertise will significantly enhance its capabilities in the US and globally.
Background to and reasons for the acquisition
Hikma’s longstanding strategy has been, and remains, to deliver high quality, affordable generic and branded generic medicines to patients through the Company’s position as a leading global injectables manufacturer, a leading pharmaceutical manufacturer in MENA and emerging markets and a high quality provider of generics in the US.
In recent years, Hikma has rapidly expanded its presence in the US generics market. Hikma is now a leading player in the US generic injectables market, reflecting strong organic growth and the successful acquisition and integration of the MSI and Bedford Laboratories businesses. Hikma has also been investing in the development of its non-injectables business in the US, with a focus on expanding its capabilities in specialised and niche segments of the market. The Board believes that the acquisition is a transformational step in delivering Hikma’s commitment to strengthen its non-injectable business in the US. It also represents a compelling opportunity to further the Company’s six key strategic priorities of:
- maximising portfolio opportunities;
- strengthening and broadening the Company’s product portfolio;
- maintaining high quality and efficient manufacturing facilities to maximise profitability;
- investing for growth;
- developing a highly skilled and effective workforce; and
- ensuring sustainable long-term growth.
In particular, the Board believes that the acquisition represents a compelling strategic fit for Hikma for the following reasons:
Roxane transforms Hikma into a leader in the US generics market
The US generics market has attractive industry dynamics with growth drivers including continued regulatory pressures to control healthcare costs, an ageing population with increasing incidence of chronic illnesses and increasing acceptance among consumers and physicians of generics as equivalents of branded pharmaceuticals, as well as patent cliff and loss-of-exclusivity opportunities. The independent industry data provider US Business Monitor International estimates that the US generic pharmaceuticals market will grow at a compound annual rate of 6 per cent. in the period 2014 to 2019.3
In 2014, Hikma’s Generics business, which sells non-injectable products in the US market, generated revenue of US$216 million and accounted for approximately 15 per cent. of Group revenue. In recent years, the Company has been developing its growth strategy for this business and investing to build a strong pipeline focused on higher value, differentiated products in more niche segments of the US generics market. The acquisition of Roxane will transform Hikma into the sixth4 largest company in US generics with good prospects for growth.
The addition of scale and product diversification to Hikma’s US Generics business will also position the Company to better serve its customers in the US, who are themselves consolidating and increasingly preferring suppliers with scale and a broad product offering. In addition, the acquisition will enhance the overall diversification of the Hikma Group and create a more balanced business model.
Roxane has a highly differentiated product portfolio of existing marketed products
Roxane has a large portfolio of 88 marketed products and over 300 package sizes across seven dosage forms and across a broad range of therapeutic categories, including the high value areas of respiratory and oncology. More than 80 per cent. of the portfolio has at least one layer of product differentiation,5 which creates a high value portfolio. Roxane has a top-three market position in over 90 per cent. of its product portfolio. In addition, approximately 75 per cent. of Roxane’s products have three or fewer competing products.
Whilst Hikma’s short-term focus will be on continuing to grow Roxane’s product portfolio and market share in the US, the Board also intends to take these products to the Company’s other markets over time, particularly Roxane’s portfolio of oncology products into the MENA region.
Roxane has a highly differentiated and robust pipeline with leading R&D capabilities which will help to ensure sustainable long-term growth
Roxane has a strong pipeline of 89 projects in various stages of development, which will support Hikma in driving sustainable long-term growth. These include 32 products which are filed and currently pending approval from the FDA. The pipeline is focused on higher value, differentiated and niche products, including 57 Paragraph IV products, which are both filed and in development. All of the pipeline products have at least one layer of product differentiation, with particularly differentiated capabilities in the high value areas of respiratory and oncology.
Roxane has 182 experienced and highly skilled employees in R&D, who have a proven track record of delivering new and differentiated products to market, with an average of eight successful new product launches annually since 2010. The acquisition will significantly strengthen Hikma’s existing R&D capabilities and is expected to support the continued development of a strong product pipeline to drive sustainable long-term growth.
