September 3, 2015
By Mark Terry, BioSpace.com Breaking News Staff
Philadelphia-based Lannett Company, Inc. announced yesterday that it inked a deal to acquire Kremers Urban Pharmaceuticals Inc. for $1.23 billion, with possible additional contingency payments. KU is the U.S.-based specialty generic pharmaceuticals subsidiary of Belgium-based UCB S.A.
“For Lannet, this is a transformational acquisition that is an exceptional strategic fit and builds upon our stellar financial performance over the last several years,” said Arthur Bedrosian, chief executive officer of Lannet in a statement. “With KU, we are adding a highly profitable business and creating a specialty pharmaceuticals company that has substantial size, scale and reach.”
KU focuses on generic products for attention deficit hyperactivity disorder (ADHD), gastroesophageal reflux disease, hypertension and respiratory disease. It markets 18 generic drugs and has 11 drug applications currently pending with the U.S. Food and Drug Administration (FDA). It also has 17 drug candidates in development.
The deal also includes KU’s facility in Seymour, Ind., which is 381,000 square feet.
Lannet indicates that because it is leveraging tax rules in section 338(h)(10), which relate to acquiring at least 80 percent of the target company’s stock, it expects to receive tax benefits of about $100 million. The company also says that “cost savings are anticipated immediately following the transaction and increasing to more than $40 million annually after the third year.”
Cost savings after a merger often involve layoffs of overlapping business areas, but the company has not commented on job cuts yet.
Lannett’s net sales for year-end June 30 were $406.8 million. It expects to add an additional revenue of $235 to $245 million by year-end June 2016.
There appears to be some movement in this year’s merger and acquisition activity involving generic drug companies. The most notable was Israel-based Teva Pharmaceutical Industries Ltd. ’s acquisition of Allergan plc ’s drug business for $40.5 billion, and Jordan-Hikma Pharmaceuticals ' deal to buy Boehringer Ingelheim’s U.S. generic drugs unit in July for $2.65 billion. The generics movement is, according to analysts, related to distributor consolidation. Distributors acquire the generic versions to sell to patients, and if distributors merge, they have more leverage in negotiating lower prices.
In the U.S. there are four major distributors that control generic drugs. They are McKesson Corporation (MCK), CVS Health Corp., through a partnership with Cardinal Health , Walgreens Boots Alliance, Inc., through a relationship with AmerisourceBergen Corporation and Wal-Mart Stores Inc.
AmerisourceBergen signed a 10-year deal in 2013 to be Walgreen’s primary brand-name supplier and took over about 60 percent of brand-name drugs that had been previously distributed by Walgreens’ warehouse network. As a result, AmerisourceBergen took over Walgreens’ generic distribution. A similar deal was made between McKesson and Rite Aid.
In May, Endo International Plc acquired Par Pharmaceutical Holdings Inc. for $8.05 billion. That, according to BloombergBusiness, will make the company among the top five in the U.S. in the generic drug business.
Other companies that appear to either be focused on generics or may be targets for generics companies include Akorn, Inc. , IMPAX Laboratories, Inc. , Sagent Pharmaceuticals, Inc., Inc., and Perrigo Company .
