Lannett To Acquire Kremers Urban PharmaceuticalsBy
Lannett Company, Inc., a Philadelphia-based generic-drug company, has agreed to acquire Kremers Urban Pharmaceuticals Inc. (KU), the US specialty generic pharmaceuticals subsidiary of the global biopharmaceuticals company, UCB S.A., for $1.23 billion, plus potential contingency payments. The transaction, subject to regulatory approval and other customary closing conditions, is expected to close in the fourth quarter of calendar 2015 and has been unanimously approved by the boards of directors of Lannett and UCB.
With the acquisition, Lannett would gain a commercial product portfolio of 18 products. The combined company generated pro-forma revenues of more than $800 million for the 12 months ended June 30, 2015. KU currently markets generic pharmaceutical products that treat a variety of conditions, including attention deficit hyperactivity disorder (ADHD), gastroesophageal reflux disease, hypertension and respiratory disease. KU has eight controlled substance products with barriers to entry in various stages of development, which would expand and enhance Lannett’s existing controlled substance portfolio. KU’s pipeline includes 11 product applications pending at the US Food and Drug Administration (FDA), of which five include Paragraph IV certifications, and 17 product candidates in various stages of development, including one 505(b)(2) product opportunity. As part of the transaction, Lannett would gain KU’s recently inspected 381,000 square foot facility in Seymour, Indiana, which has manufacturing and warehousing capacity, as well as dedicated product development space.
KU currently markets methylphenidate hydrochloride XR, a drug that is indicated for the treatment of ADHD. Last year, the FDA asked KU to conduct new bioequivalence testing of its methylphenidate hydrochloride XR product using proposed bioequivalence criteria that the FDA issued in November 2014. The FDA also changed the therapeutic equivalence rating for the product from AB to BX. A BX rating means the product is approved and can be prescribed, but is not automatically substitutable at the pharmacy for the branded drug. KU has submitted the final results of new bioequivalence studies designed to assess whether KU’s methylphenidate hdrochloride XR product meets the FDA’s proposed revised bioequivalence criteria. In the event that methylphenidate hdrochloride XR’s AB rating is restored, UCB is eligible to receive contingency payments under sales and timing thresholds.
Lannett believes that there is an opportunity for synergies through enhanced efficiencies and economies of scale. Cost savings are anticipated immediately following the transaction and increasing to more than $40 million annually after the third year. Lannett expects to receive a tax benefit as a result of 338(h)(10) election with a value in excess of $100 million.