TIDMHIK
RNS Number : 6116O
Hikma Pharmaceuticals Plc
10 February 2016
Hikma announces revised terms for previously announced
acquisition of Roxane Laboratories
- Upfront gross cash consideration reduced by US$535 million
following the receipt of new information on Roxane's financial
performance in 2015
- Acquisition still expected to be strongly accretive from 2017 onwards
- BI will continue to hold a 16.71% stake in Hikma following
closing, as the equity component of the consideration remains
unchanged
- Roxane brings 90 highly differentiated products in specialised
and niche segments of the market and an attractive pipeline,
including some potentially substantial market opportunities
- Transaction remains transformational for Hikma, with a
compelling strategic rationale and significant financial value
London, 10 February 2016 - Hikma Pharmaceuticals PLC ("Hikma" or
the "Company") (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (rated
Ba1 Moody's / BB+ S&P, both stable), is today announcing an
update to the information provided to shareholders in the combined
circular and prospectus published by the Company on 22 January 2016
in relation to its acquisition of Roxane Laboratories Inc. and
Boehringer Ingelheim Roxane Inc. from Boehringer Ingelheim (the
"Acquisition") (the "Prospectus").
Following the publication of the Prospectus, Hikma received new
information from BI on the financial performance of Roxane in 2015
and Hikma and BI have accordingly agreed certain changes to the
terms of the Acquisition. As a result of these matters, Hikma will
be required under the Listing Rules and Prospectus Rules to publish
a supplementary circular and prospectus (the "Supplementary
Prospectus") as a supplement to the Prospectus. Subject to
finalisation of the Supplementary Prospectus and approval by the
Financial Conduct Authority, Hikma will publish the Supplementary
Prospectus as soon as practicable and expects the Supplementary
Prospectus to be sent to shareholders by no later than 9a.m. on 12
February 2016 and for the Supplementary Prospectus to include the
following updates to the Prospectus:
-- Following the publication of the Prospectus dated 22 January
2016, Hikma received new information from BI in relation to
Roxane's financial performance during 2015, which the Hikma Board
believes will also have an impact on Roxane's outlook for 2016 and
2017.
-- Following further due diligence into the new information
provided by BI, Hikma now expects that Roxane's unaudited revenue
for 2015 was lower than had previously been anticipated by Hikma on
the basis of the information available to it at the time of the
publication of the Prospectus, due to higher than expected rebates.
The rebates were paid primarily to wholesalers and increased
largely due to the shift from direct sales to retailers to indirect
sales through the wholesalers. The rebates relate to all Roxane
products although some specific product rebates have been offered
on a case by case basis. The rebates resulted in lower net selling
prices on marketed products than had previously been expected. In
addition, Hikma now expects that Roxane's unaudited cost of sales
were slightly higher than had previously been anticipated by Hikma
on the basis of the information available to it at the time of the
publication of the Prospectus, due to higher volumes and change in
product mix which has resulted in higher cost of raw materials.
Hikma now expects that Roxane's unaudited revenue for 2015, rather
than being slightly higher than 2014, was around US$650 million.
When taken together with the increased expenses, this has led to a
weaker outturn than achieved in 2014.
-- On the basis of the new information provided by BI, Hikma now
anticipates that Roxane's full year revenue for 2016 will also be
negatively impacted compared to Hikma's previous expectation and,
as a consequence, will be lower than revenue in 2015. Hikma now
expects that further adjustments for the impact on revenue it
anticipates due to the rebates in 2016, alongside the previously
expected increase in competition on the current marketed portfolio,
will only be partially offset by revenue from recent and planned
new product launches. On the basis of the new information provided
by BI and the revised terms of the Acquisition, Hikma now expects
that the Acquisition will be slightly dilutive to adjusted EPS in
2016.
-- On the basis of the new information provided by BI, Hikma now
anticipates that Roxane's full year revenue for 2017 will also be
negatively impacted compared to Hikma's previous expectation. Hikma
now anticipates that Roxane's total revenue for 2017 will be
between US$700 million and US$750 million, rather than the previous
expectation that revenues in 2017 would be between US$725 million
US$775 million.
-- Pursuant to an amendment agreement to the Acquisition
Agreement signed today, the parties have agreed to reduce the
purchase price. Under the revised terms of the Acquisition, on
Closing, Hikma will pay gross consideration of US$647 million in
cash as opposed to US$1.18 billion, a reduction of US$535 million.
Hikma will issue 40,000,000 Consideration Shares, which is
unchanged from the number agreed on 28 July 2015.
-- As disclosed in the Prospectus, the Acquisition Agreement
contains customary warranties given by BI in relation to its title
and ownership of Roxane and in relation to the underlying
businesses of Roxane, and it contained limitations on liability and
indemnification provisions. Under the terms of the Acquisition
Agreement, Hikma was able to recover losses for breach of
representations made by BI in the Acquisition Agreement only to the
extent that they exceeded US$39.75m, and in relation to any excess
above such amount, Hikma's recovery was capped at US$26.5m (save in
respect of any claim for fraud or injunctive or provisional relief
(including specific performance)).
-- As part of the agreement to reduce the purchase price by
US$535m, Hikma has agreed that (save in respect of any claim for
fraud or injunctive or provisional relief (including specific
performance)) Hikma and the Buyer Related Parties (as defined
below) shall release and discharge BI and the Seller Related
Parties (as defined below) from all claims which the Buyer Related
Parties had, have, or may in the future have, that in any way are
based on, relate to or arise under any financial information about
Roxane, requested, provided, delivered or otherwise made available
to any Buyer Related Party in connection with the Acquisition
Agreement or the Acquisition (the "Released Claims"). The Amendment
Agreement states that the Buyer Related Parties covenant to refrain
from seeking to establish liability or seeking any damages from the
Seller Related Parties for any of the Released Claims.
-- The other terms remain as described on pages 88 to 90 of the Prospectus.
The Supplementary Prospectus will include an update to the
unaudited pro-forma financial information set out on pages 134-139
of the Prospectus.
Subject again to finalisation of the Supplementary Prospectus,
and approval by the Financial Conduct Authority, Hikma expects the
Supplementary Prospectus to reiterate the following guidance given
on page 53 of the Prospectus:
-- Consistent with the original terms disclosed in the
Prospectus, Hikma continues to expect a reduction in revenues from
products manufactured for BI and its affiliates.
-- As previously stated, Hikma will focus on improving Roxane's
product mix and reducing overheads and other expenses following
Closing.
-- With the exception of further adjustments for the impact of
rebates in future years, and ordinary course updates to product
forecasts, all of Hikma's assumptions remain unchanged.
-- Hikma continues to expect close to 20 launches from the
Roxane pipeline in 2016 and 2017, including some potentially
substantial market opportunities.
-- In addition, Hikma expects an improved product mix in 2017, resulting from the successful commercialisation of Roxane's differentiated pipeline and the reduction in the supply of lower-margin products to BI and its affiliates.
-- Hikma reiterates its expectation that an improved product
mix, combined with anticipated operating efficiencies gained
through the combination with Hikma's US business, will
significantly improve performance and will enable Roxane to expand
EBITDA margins from the pre-acquisition levels to around 35 per
cent. over the medium term.
-- In spite of the reduction in Hikma's expectations for
Roxane's revenue in 2017, Hikma reiterates that the Acquisition is
expected to be strongly accretive to adjusted EPS from 2017, the
first full year, onwards.
The Board continues to unanimously recommend that the
Shareholders vote in favour of the Resolutions at the General
Meeting, to be held at 9.00a.m. on 19 February 2016 at The
Westbury, Bond Street, Mayfair, London W1S 2YF.
In accordance with LR10.4.2R (2), Hikma confirms that, except as
disclosed, there has been no significant change affecting any
matter contained in the Prospectus and no other significant new
matter has arisen which would have been required to be mentioned in
the Prospectus if it had arisen at the time of the preparation of
the Prospectus.
Said Darwazah, Chief Executive Officer of Hikma, commented:
"We remain very excited about the strategic and financial value
of this acquisition, which will transform our position and scale in
the US generics market. Whilst there will be a short term impact
related primarily to higher than expected product rebates, we have
agreed a reduced purchase price to reflect this, and we remain
confident in our outlook for the business. Roxane's impressive,
differentiated product portfolio and pipeline, along with its
manufacturing capacity and technological capabilities will create a
strong platform for sustainable long-term growth and substantial
value for shareholders."
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