- Amneal Pharmaceuticals LLC announced Tuesday it would combine with Impax Laboratories Inc. in an all-stock transaction that will create the fifth largest generics drugmaker in the U.S. by gross revenue.
- Executives emphasized the tie-up would result in a more diversified company, blending the two drugmakers' generics businesses with Impax's growing specialty franchise — a potential edge as increased competition in the U.S. market for knockoff drugs threatens bottom lines.
- Members in privately held Amneal Holdings will own approximately 75% of the combined company, which will be named Amneal Pharmaceuticals Inc. and led by Impax Labs' CEO Paul Bisaro. Shareholders of Impax will own the remaining 25%.
Large generics makers like Teva Pharmaceutical Industries Ltd. have been hurt by rising competition in the U.S. generics market in recent years, which has put downward pressure on prices for copycat drugs. That trend looks likely to intensify, too, as the Food and Drug Administration speeds up the approval process.
Commissioner Scott Gottlieb has made clearing the generic drug application backlog a priority and sees higher competition from generics as a key lever to addressing concerns over rising costs for branded pharmaceuticals.
Combining will give Amneal and Impact greater scale and a broader portfolio that the companies say will boost the competitive position of the new entity. Together, the two drugmakers will also command a generic product pipeline that nears the breadth of top companies in the sector. All told, the new company will have roughly 150 pending Abbreviated New Drug Applications.
"We view this deal as opportunistic for Impax as it allows the company to combine with a higher quality generics manufacturer, while it is receiving fair value for its generic pipeline and future expected negative headwinds are significantly discounted," wrote Cowen analyst Tyler Van Buren in a Oct. 17 note.
The companies expect combining will lead to near immediate benefits, with double-digit revenue growth in net revenue and adjusted earnings per share forecast for the first several years following the deal's close. And by eliminating "complementary" parts of each drugmaker, the transaction is expected to save as much as $200 million in annual costs within three years.
"The anticipated strong cash flows from the combined company allow for the repayment of debt and the ability to meaningfully invest in our business," said Impax's Bisaro in an Oct. 17 statement.
2018 pro forma earnings before interest, taxes and depreciation are forecast at between $700 and $750 million following the transaction's anticipated closing in the first half of 2018.
In conjunction with the combination, Amneal Holdings members have agreed to sell roughly 47 million common shares to institutional investors at $18.25 per share for total proceeds of $855 million.
Amneal's co-chief executive officers Chirag Patel and Chintu Patel will become co-Chairman of the new company's board of directors, which will include four other members from Amneal Holdings plus five to be appointed by Impax. Bisaro, who has significant experience in the generics business from his time as CEO of Actavis, will remain as the CEO of the combined company.
Shares in Impax fell by more than 10% Tuesday morning on news of the combination, possibly reacting to the now removed possibility of a cash acquisition.