Hikma slashes offer for Boehringer unit

Hikma Pharmaceuticals almost halved the cash portion of its offer for Boehringer Ingelheim's US generic drugs business on Wednesday.

London - Hikma Pharmaceuticals almost halved the cash portion of its offer for Boehringer Ingelheim's US generic drugs business on Wednesday, after further due diligence revealed that the unit's 2015 revenue would be lower than expected.

Shares in the drugmaker, which said the deal was now expected to cut adjusted earnings this year, fell as much as 20 percent, marking its sharpest fall in nearly seven years. The stock was the biggest loser on the FTSE 100 index.

Hikma in July agreed to buy the unit, Roxane, for about $2.65 billion in cash and stock, moving to become the sixth biggest provider of generic drugs in the United States and gain scale in a highly competitive market.

Real also: Hikma to buy Boehringer unit

The sector had its biggest deal-making streak in history last year, with global transactions totalling $673 billion, according to Thomson Reuters data, as large drugmakers bought up smaller rivals, makers of generic medicines consolidated and insurers teamed up.

The Jordanian company, which makes and markets branded and non-branded generic and injectable drugs, reduced the cash component of the deal by $535 million from the $1.18 billion it was initially set at, but kept the stock portion unchanged.

“Despite the wider rationale for the deal over the medium to long-term, unexpected developments at the latter stages of a transaction are undoubtedly unnerving,” Panmure Gordon analysts wrote in a client note.

The Roxane deal, with sales targets of $725 million to $775 million in 2017, was expected to help significantly bulk up Hikma's generics division, which brought in $215 million in 2014, or 15 percent of sales.

However, Hikma said it now expected Roxane's full-year 2016 revenue to be lower than 2015 and slashed 2017 guidance to between $700 million and $750 million.

Roxane's cost of sales for 2015 was slightly higher than previously anticipated, as higher volumes and a change in product mix drove up raw material costs, Hikma said.

This further depresses prospects for the struggling unit, which has been hurt by slower-than-anticipated sales growth of a drug to treat gout flares, resulting in Hikma cutting the division's full-year 2015 revenue forecast twice.

Hikma said it still expects the deal to “strongly” add to earnings from 2017.

Shares in the company were down 11 percent at 1773 pence at 0955 GMT, having hit their lowest since the company's move to the FTSE blue-chip index last March.

REUTERS