The Health Care M&A Monthly: Pharma M&A Results--

January Posts Eight Deals Worth $2.6 Billion


The Pharmaceutical industry reported robust merger and acquisition activity during January, spanning a wide range of subsectors. Deal making included collaboration agreements as well as outright sales, single products as well as whole companies, generics as well as branded drugs. Based on preliminary results, the value of this M&A activity is worth a combined $2.6 billion.

The largest deal in terms of dollar value involves a two-part transaction between Eli Lilly & Co. (NYSE: LLY) and Boehringer-Ingelheim GmbH to develop and commercialize several diabetes drugs. This partnership will initially focus on one drug from Boehringer that is in regulatory review and another that is in late-stage testing. The deal gives LLY access to a portfolio of metabolic drugs whose revenues could offset the loss of revenue from several LLY drugs going off patent in the near term. On the flip side, it helps Boehringer bring its metabolic drug candidates to market more quickly and widely through LLY’s marketing network, and share development costs with its partner. 

Under terms of the collaboration, Lilly is to receive €300.0 million in an upfront payment and up to €625.0 million in regulatory milestone payments, for a total of approximately $1.235 billion. For its part, Boehringer is to receive up to $650.0 million in regulatory payments. Both companies are responding to the opportunity for new drugs to combat the rising tide of obesity across the globe.

The Perrigo Company (NASDAQ: PRGO) recently announced a deal to acquire Paddock Laboratories for $540.0 million in cash. Based in Minneapolis, Paddock Labs manufactures and markets generic pharmaceutical products, generating approximately $200.0 million in annual sales from a portfolio of over 35 products. This acquisition, valued at 2.7x revenue, expands the buyer’s generic drug portfolio, and adds incremental scale to its operations.  It also increases capacity so PRGO can benefit from the migration to its generic products as several of Johnson & Johnson’s (NYSE: JNJ) brand-name competitors are recalled and taken off the shelves. For the cherry on top, the deal comes with a tax benefit of $95.0 million, which lowers the effective purchase price to $445.0 million and the price to revenue multiple to 2.2x. The deal is to be financed from $80.0 million in cash on hand, $310.0 million from an existing bank agreement and $150.0 million from a new term loan. Morgan Stanley and Green Holcomb & Fisher provided PRGO and Paddock with financial advice on this deal, respectively.

FCB I Holding, which is 81% owned by Footstar (OTCBB: FTAR), a corporate shell, is paying $76.6 million to acquire CPEX Pharmaceuticals (NASDAQ: CPEX). Based in New Hampshire, CPEX develops pharmaceutical products that incorporate its validated drug delivery platform technology, CPE-215, which enhances permeation and absorption of pharmaceutical molecules across biological membranes, such as the skin, nasal mucosa and eye. This bid, valued at 3.5x revenue, offers CPEX shareholders an 11% premium to the stock’s prior-day price. In effect, the transaction allows CPEX to be recapitalized, the better to pursue its business. RBC Capital Markets provided CPEX with financial advice.

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