February 1, 2010 / 12:40 PM / 11 years ago

Cephalon to buy generic firm Mepha for $590 million

BOSTON (Reuters) - U.S. drugmaker Cephalon Inc CEPH.O said on Monday it will buy Mepha AG, the Swiss generic drugmaker owned by Germany’s Merckle family, for about $590 million (622.5 million Swiss francs) to diversify its product line and expand internationally.

Mepha manufactures and markets more than 120 products in 50 countries, with sales of about $377 million (400 million Swiss francs) in 2009. The deal could double the size of Cephalon’s international business.

Cephalon built itself on the back of its sleep disorder drug Provigil. It also sells Nuvigil, a successor drug to Provigil, as well as pain product Fentora and cancer drug Treanda.

“This gives us more stuff to sell and more territories to sell it in,” said Frank Baldino, Cephalon’s chief executive, on a conference call with investors.

The move represents a departure from Cephalon’s usual mergers and acquisitions strategy. The company typically acquires individual products, or acquires options on products.

“We’ve always thought it futile to guess Cephalon’s next target, as they’ve made a living snagging unknown/overlooked assets,” said Corey Davis, an analyst at Jefferies. “This acquisition is far different from its recent smaller deals which leaned back toward its “biotech” roots.”

Pharmaceutical companies around the world are looking to acquire generic drugmakers to help them offset declining revenue from big branded products. Mepha sells, among multiple other products, diclofenac for pain in multiple forms, including gel and patch.

Cephalon said it expects the deal to close in the next 10 to 12 weeks and add to 2010 earnings. The company will update its forecast when it reports quarterly results on February 11, but in the meantime has withdrawn its 2010 outlook issued in October.

However, Baldino said he does not see the company’s earnings growth rate changing “radically” from its historical growth rate.

Cephalon said it expects to achieve “substantial synergies,” and that it will be able to use its increased global reach to help expand sales of its existing products.

In November, the number of suitors for Mepha, a sister company to Germany’s Ratiopharm, stood at about half a dozen pharmaceutical companies, a person familiar with the matter told Reuters at the time. The Merckle family had hoped to fetch more than 700 million Swiss francs for Mepha, sources have told Reuters.

Baldino said bidding for Mepha was intense.

“We were competing with different people than we have in the past, and there were a number of companies involved to the bitter end.”

The Merckle family is also selling Ratiopharm, a larger generic drugmaker, as part of concessions made to creditor banks by the late family patriarch Adolf Merckle, who committed suicide a year ago after losing control over his business empire to lenders.

With its acquisition of Mepha, Cephalon gains a raft of products that include treatments for anemia, schizophrenia, bacterial infections, pain, heart disease, allergies, hypertension, malaria, respiratory tract infections, ulcers, cough and mood and anxiety disorders.

“The European market has traditionally been a generic and branded generic market,” said Baldino. “That’s what they want, that’s what they’re paying for.”

The products include modified release versions of branded generics; branded generics and generics. Mepha also sells certain over-the-counter products in selected countries. The company’s top selling products generated more than 60 percent of its 2009 sales.

Cephalon said it aims to launch 50 new products between 2010 and 2014, with an anticipated 150 commercial launches of products in different dosage forms and geographies.

After the acquisition, Cephalon, which is also looking to make other acquisitions, especially in China, said it will have 3,800 employees, with a sales presence in 100 countries. About 30 percent of its sales will be outside the United States.

Cephalon’s shares rose 1.5 percent to $64.81 in morning trading on Nasdaq.

Reporting by Lewis Krauskopf in New York, Toni Clarke in Boston and Ludwig Burger in Frankfurt, editing by Dave Zimmerman

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