Meda said today it will buy Rottapharm Madaus for SEK 21.2 billion (about $3.1 billion) from Italy’s Rovati family, in a deal the buyer said reflected its desire to grow into a leading specialty pharma through acquisitions—namely by combining the seller’s portfolio of mostly over-the-counter drugs with the buyer’s specialty pharma offerings.
Meda said it would benefit from the deal by being able to broaden its reach to physicians, pharmacists, and consumers, and enhance its profitability based on the added revenue of consumer drugs as well as cost-cutting or “synergies” from operational overlaps.
The deal would bring to Meda Rottapharm’s prescription drug Legalon® for liver degenerative, inflammatory, and fibrotic diseases—and under study for prevention of recurrent hepatitis C in liver transplant patients—and numerous over-the-counter consumer health products or “Cx.” These include Dona®, the arthritis drug that would become the best-selling product for the combined company, as well as the feminine hygiene product Saugella®, and nutriceutical ArmoLIPID® for dyslipidemia management.
Meda, by contrast, has concentrated on prescription drugs for respiratory and dermatology indications. They include Astelin, an improved nasal-spray formulation of Astelin for allergic and non-allergic rhinitis, and the nasal spray Dymista, combining azelastine and fluticasone, and approved for seasonal allergic rhinitis in the U.S., as well as seasonal and perennial allergic rhinitis in Europe. Meda’s dermatology products include Zyclara for actinic keratosis; Elidel for atopic eczema based on pimecrolimus; and Aldara (imiquimod), indicated for actinic keratosis, superficial basal cell carcinomas, and external genital warts in men and women.
Meda said it would focus resources of the combined company on key brands, with a view to growing through increased in-market sales, internationalization and line extensions.
The combined company would derive about 60% of revenues from its prescription drugs and the remaining roughly 40% from Cx, compared with the 73% prescription—24% OTC split of today’s Meda, according to its website.
Rottapharm by contrast derives 75% of revenues from consumer products. Founded in 1961, the company employs 1,807 people and operates five production facilities in Europe and India.
“The acquisition of Rottapharm is an important step in creating a stronger, improved Meda,” Jörg-Thomas Dierks, M.D., Meda’s CEO, said in a statement. “The combined business will have an improved Rx / Cx balance and increased investment opportunities. This acquisition is in line with our strategic priorities to execute value-accretive M&A and invest in consumer healthcare and emerging markets.”
The combined company’s emerging-market sales will total more than SEK 3 billion ($434.95 million) or 17% of pro-forma 2013 sales—about 50% higher than that of today’s Meda.
Unlike prescription drugs OTC drugs do not require reimbursement, face limited generic competition, and can be brought to market more quickly. Those factors help explain why Rottapharm last year enjoyed a gross margin of 67% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of €149 million ($199.6 million) or profit margin of about 28%, on revenues of €536 million ($718 million).
For the first half of this year ending June 30, Rottapharm sales growth excluding acquisitions stood at about 5%.
Rottapharm had planned to raise €540 million ($723 million) through an initial public offering on the Milan Stock Exchange, but canceled the IPO on July 10 after failing to find investors willing to buy shares at the price range set by the company. Meda sought to be acquired by Mylan, but Mylan instead agreed to buy the outside-U.S. branded generic drug business of Abbott Laboratories for about $5.3 billion.
Instead Meda will acquire Rottapharm by shelling out SEK 15.3 billion ($2.2 billion) in cash, 30 million Meda shares valued at SEK 3.3 billion ($478.6 million), and a noncontingent deferred payment in January 2017 of SEK 2.6 billion ($377.1 million).
The deal is expected to add to Meda’s EPS and cash EPS by more than 20% once the companies are integrated in 2016.
By then, the combined company expects to have fully implemented its cost synergies, which are expected to generate about SEK 900 million ($130.6 million) annually in savings. “Synergies are anticipated to be driven by efficiencies in sales and marketing, administration, and research and development,” Meda stated.
Following completion of the transaction, the Rovati family will own 9% of Meda.
“From our foundation in 1961, we have built Rottapharm into a leading consumer-focused branded specialty pharma business, leveraging our heritage in science and clinical development,” added Rottapharma CEO Luca Rovati. “We are now ready to take the next step.”