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Stada Would Consider Merging With Branded-Drug Maker, Biotech

Stada Arzneimittel AG, the generic-drug maker whose shares have lost more than a third of their value since it wrote down assets last month, would consider merging with a similar-sized branded or biotechnology drugmaker, Chief Executive Officer Hartmut Retzlaff said.

Stada “would not rule out any possible constellation as long as it made business sense,” Retzlaff said in a Sept. 28 interview at the company’s Bad Vilbel headquarters. “One could imagine different constellations.”

Combining with a peer would allow Stada to avoid the fate of German competitors, which were bought by larger drugmakers. Novartis AG acquired Hexal AG in 2005 and Teva Pharmaceutical Industries Ltd. snapped up Ratiopharm GmbH last year.

There are no talks under way, said Retzlaff, who didn’t name potential merger partners. Stada would consider a biotech or branded-drug partner because the company is already well positioned in generics, he said.

Stada in August agreed to work together with Hungary’s Gedeon Richter Nyrt. on copies of Roche Holding AG’s cancer medicines Rituxan and Herceptin. Asked whether Richter would be a suitable partner, he said Stada is “very happy” with the collaboration and would need to examine how well the companies cooperate if it were to consider a closer connection.

The biggest challenge would be to assure a fruitful combination with a potential partner’s pipeline and production locations, Retzlaff said.

Stock Slump

Stada fell 38 cents, or 2.4 percent, to 15.43 euros in Frankfurt trading yesterday, giving the company a market value of 908 million euros ($1.2 billion). The stock trades for 6.2 times this year’s estimated earnings, compared with an average of 12.5 for European drugmakers of similar size.

The stock is so cheap now that Stada may be a takeover target, David Adlington, an analyst with JPMorgan Chase & Co. in London, said in a note to investors last week. Yet the company may be unlikely to draw a bid because it doesn’t offer “attractive assets that could add growth to an acquirer,” Martin Brunninger, an analyst at Nomura Equity Research, wrote in a report last week.

Net income fell 32 percent to 68.4 million euros last year, hurt by rebates that drugmakers were forced to give to German insurers, as well as the first round of Serbian writedowns. Analysts predict Stada’s profit will rebound 17 percent this year, based on the average of 15 estimates compiled by Bloomberg.

Serbian Acquisition

Stada acquired Serbia’s Hemofarm Koncern AD in 2006 for 480 million euros, the company’s biggest acquisition and part of a push to shift manufacturing capacity as well as sales into eastern Europe. The company announced a 29.5 million-euro writedown on unpaid bills from Serbian drug wholesalers last year, and Sept. 21 said it would take another 97-million-euro charge for the same reason.

Hemofarm is “really in good shape,” Retzlaff said. “The market environment is difficult.” About 50 million euros of Stada’s 829.7 million euros in first-half revenue came from Serbia, he said.

Beginning Jan. 1, Stada will seek to sell directly to pharmacies and hospitals in Serbia, or deal with the Serbian state or Serbian health funds instead of with wholesalers as middlemen, Retzlaff said. If sales to wholesalers are necessary, the company would seek payment on delivery, he said.

Stada hasn’t been deterred from expansion in the east and wants to acquire more brands in Russia, Retzlaff said.

The company is in discussions about a bond issue similar in size to its 350 million-euro placement last year, he said.

Retzlaff confirmed the company’s 2014 targets of sales of 2.15 billion euros and profit adjusted for special items of 215 million euros. Investors should expect a dividend to be paid for this year, he said, declining to comment on the amount.

Pharmacists and doctors own about 12 percent of the shares in Stada, which was founded in Dresden in 1895 as a pharmacists’ cooperative.

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