The biotech sector has been full of consolidation and mergers of late, but now we have a new model whereby a smaller company is set to grow by taking a part of a larger company. We cannot exactly call it a reverse merger. Alkermes, Inc. (NASDAQ: ALKS) and Elan Corporation, plc (NYSE: ELN) have signed a definitive pact where Alkermes will merge with Elan’s unit called Elan Drug Technologies.
The drug technologies unit is profitable and is the drug formulation and manufacturing unit. The cash and stock transaction is valued toda at roughly $960 million and Alkermes and the unit will be combined under a new holding company structure that is incorporated in Ireland called Alkermes plc.
Alkermes says this deal will be immediately accretive to cash earnings. It also is said to accelerate Alkermes’ path “to building a sustainably profitable biopharmaceutical company with expertise in developing treatments for central nervous system diseases and a broad, diversified portfolio of products and pipeline based on proprietary science and technologies.”
The deal is a game-changer because on a standalone basis Alkermes was set to have a loss of -$0.31 EPS on $213.27 million in its fiscal year March-2012. The combined company is said to see a growing product, royalty and manufacturing revenues in excess of $450 million annually. Alkermes said it will also become immediately profitable on a cash earnings basis. In short, Alkermes instantly transforms. Now the company will have a revenue stream from 25 commercialized products and its 5 growth products will now be from RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, VIVITROL, and BYDUREON.
For Elan, it gets to cut the debt on its balance sheet and will get to improve its capital structure, increase its operating leverage, and this will allow for additional focus and disciplined investments. It also gets a stake in Alkermes plc that can drive its value ahead.
RISPERDAL CONSTA and INVEGA SUSTENNA are both commercialized by Johnson & Johnson (NYSE: JNJ) as long-acting injectable atypical antipsychotic medications for schizophrenia and bipolar I disorder. Ampyra is an MS drug under Acorda Therapeutics, Inc. (NASDAQ: ACOR). Bydureon is an extended release Typy-II diabetes treatment that Alkermes is in with Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) and Eli Lilly and Company (NYSE LLY).
Elan is set to receive $500 million plus it will also receive 31.9 million ordinary shares of Alkermes plc common stock. The companies will also enter into a shareholder agreement that contains a lockup, standstill and voting agreement for Elan’s shares of Alkermes plc.
As far as existing Alkermes holders, they will receive one ordinary share of Alkermes plc per each share of Alkermes, Inc. owned at the merger date. The new Alkermes plc shares will be registered in the United States and are expected to trade on NASDAQ. Alkermes plc will be headquartered in Dublin, Ireland The company did note that this transaction is expected to be taxable to existing Alkermes holders and it has obtained a commitment from Morgan Stanley & Co. and HSBC to provide up to $450 million of term loans to finance the transaction.
Revenues are expected to grow in fiscal 2012 and is expected to reach double-digit growth rates in fiscal 2013 and beyond. Pro forma Adjusted EBITDA margins in fiscal 2012 are projected at 15% to 20%, pro forma Adjusted EBITDA is put at $70 million to $90 million, and pro forma adjusted EBITDA margins should expand to 30% to 35% in fiscal year 2013 and beyond. Also noted was that it has identified about $20 million of annual synergies in U.S. operations that can be fully realized by fiscal 2013.
JON C. OGG
SeraCare Life Sciences, Inc. (NASDAQ: SRLS) was up $0.27 (8.11%) this morning to $3.60 on no news.
SeraCare Life Sciences, Inc. is a life sciences company that develops and produces products of human and animal diagnostics and therapeutics.
Sequenom, Inc. (NASDAQ: SQNM) is trading lower in the after-hours session after the troubled diagnostics company reported its year-end earnings. Because of its recent woes of 2009, the earnings and revenue reports are a true side-show compared to what the company is updating over its pipeline and over its products.
We would note that actual trading could whip around significantly during the company’s conference call due to very speculative nature of the company and due to its trading history in 2009 and so far in 2010.
The company gave a T21 (Down syndrome) update, and it does not sound like the company is throwing in the towel here nor anything at all like it is backing off… This is the biggest issue, or has been, for the company. At least that is our take. Sequenom said that it “remains committed to the development, third party validation and launch of a noninvasive T21 test. R&D efforts focus on DNA based approaches using our MassARRAY platform and next-generation sequencing platforms. Collectively, the R&D and clinical sample collection costs that will be required to enable a pivotal third party T21 test validation study represent the single largest investment the company will make in 2010.”
More specifically, Paul V. Maier, interim chief financial officer, was quoted as saying, “With the completion of a strategic review in late 2009, we are now focused on funding priority projects in 2010, which includes continuing to make a major investment in T21 development and clinical studies. An additional project which will receive priority funding for 2010 includes development of the next generation of MassARRAY instrumentation.”