Hikma Cuts Cash Portion of Payment to Buy Boehringer's Roxane

  • Stock slumps, clocking steepest drop in more than seven years
  • Roxane's unexpected sales fall may hurt Hikma profit this year

Hikma Pharmaceuticals Plc almost halved the cash it will pay to buy Boehringer Ingelheim GmbH’s Roxane business, bringing the acquisition price down to $2.1 billion, after finding sales dropped last year and may do so again this year and next. The stock had its biggest decline in more than seven years.

The cash portion of the Roxane purchase will be reduced by $535 million, the Amman, Jordan-based company said in a statement on Wednesday. Hikma in July had agreed to pay $1.18 billion in cash and issue 40 million new shares to Boehringer to buy Roxane for $2.65 billion and become the sixth-largest supplier of generic medicines in the U.S.

Roxane’s unaudited revenue fell to about $650 million last year, lower than Hikma had anticipated, due to higher-than-expected rebates, Hikma said. The lower prices for its medicines may also damp revenue this year and next, and cause the acquisition to hurt Hikma’s adjusted earnings per share this year. Hikma’s stock fell as much as 20 percent to 1,598 pence in London trading, the steepest decline since July 21, 2008.

The rebates were paid mostly to wholesalers and increased due to the shift from direct sales to retailers to indirect sales through the wholesalers, the company said. They relate to all Roxane products.

“The reduction in purchase price more than compensates Hikma for lower near-term Roxane profitability,” Jamie Clark, an analyst at Bank of America Corp., wrote in a note to clients. “The primary reason for the deal was to gain access to its product pipeline, of which there is most visibility on generic Advair,” rather than drugs already for sale, according to Clark.

Other potential buyers for Roxane had included Mallinckrodt Plc and Perrigo Co., people with knowledge of the matter said last year.

“We are convinced that the sale of Roxane to Hikma is the right decision for both companies and that there are further development possibilities for Roxane in the currently difficult market environment in the U.S.,” closely held Boehringer said in an e-mailed statement.

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