Akorn/Merck deals Fresenius Sees Big Money in Generics

With its purchase of US generic drugmaker Akorn and a move into non-patented biotech drugs, healthcare giant Fresenius hopes to save billions at the same time as tapping into a new market worth tens of billions.
There's money in them there bags.

Fresensius, Europe's largest publicly traded healthcare group, had an active and rejuvenating start to the week.

After announcing on Monday that it was buying US generic drug maker Akorn in a $4.3 billion (€3.9 billion) deal, it quickly followed up with the news that it had also acquired the so-called biosimilars unit of German rival Merck. These are generic drugs made using biotechnological methods, that is, from living organisms.

In buying Akorn, Fresenius, the world’s largest provider of dialysis services through its listed subsidiary Fresenius Medical Care, will expand its business in areas including medical creams, ophthalmic drugs, ear drops and nasal sprays. The firm will pay $34 per share and take on Akorn’s net debt of around $450 million, meaning the total takeover sum is around $4.75 billion. Two weeks ago, it said it was in talks to buy the Nasdaq-listed rival.

“The Akorn deal makes sense for Fresenius financially and strategically, because the company is expanding its existing business,” wrote analysts from Berenberg Bank.

Akorn, with 2,000 employees, has annual sales of $1 billion and pre-adjusted earnings of $450 million. Its headquarters in Illinois is only a few kilometers away from a Fresenius office, so the German firm is banking on significant synergy effects to help reduce costs and bolster productivity. Consolidated results could increase by up to €2.7 billion

Fresenius, which is valued at €40.7 billion on the Frankfurt stock exchange, has been snapping up businesses for more than a decade. In September, it announced its biggest takeover ever, buying Spain’s largest private hospital operator, Quirónsalud, for €5.8 billion. It marked the first expansion of its hospital operations outside Germany, where Fresenius is the largest publicly listed owner of medical centers, which include the Helios hospital chain.

The smaller deal with Merck, which is a separate firm to US rival Merck & Co., continues this buying spree, and marks Frensius's first foray into the new and growing multi-billion euro biosimilars market. It will cost Fresenius an initial €170 million and up to €500 million in additional payments, which will depend on the achievement of certain targets.

Research firms including IMS Health and Wyatt Research predict that the biosimilar market could grow to $20 billion to $30 billion by the end of this decade. In all, patents on biotech drugs totaling $40 billion will expire, meaning the drugs can soon be copied.

The Merck unit focuses mainly on treatments for cancer and autoimmune diseases, with Fresenius claiming the original drugs from which the unit's generics are derived are currently responsible for €30 billion in turnover. It plans to invest €1.4 billion in developing new biosimilars up to 2022.

Fresenius Chief Executive Stephan Sturm, who took the top job in July 2016, told Reuters the company had been reluctant to invest in biosimilars until the regulatory environment became clear - something he said had now happened.

“With these acquisitions, we at Fresenius are setting the course for broader and sustainably stronger growth for at least the next decade,” he added.

Throughout the past decade, Fresenius has enjoyed an average growth rate of 10 percent per year – through acquisitions and by virtue of its own products. The sum result is yearly growth to the tune of 17 percent and a most recent annual profit of €1.6 billion.

091 Fresenius_ Neu 2017-04-10-01


Meera Selva is an editor with Handelsblatt Global. Gilbert Kreijger and Maike Telgheder contributed to this article. To contact the authors: [email protected]