Recipharm AB, a contract development and manufacturing organization (CDMO) based in Jordbro, Sweden, has signed two separate agreements to acquire Kemwell's pharmaceutical CDMO businesses. The first transaction involves Recipharm’s acquisition of Kemwell’s US and Swedish operations for $160 million. The second transaction involves Recipharm’s acquisition of Kemwell’s CDMO operations in India for $120 million. The agreement also includes a right of first negotiation to acquire Kemwell's Indian biopharma business, which is not included in the transaction and will continue to be retained by the seller.

The first acquisition, comprising US and Swedish operations, is expected to close during the second quarter 2016, after review by the Swedish Competition Authority while the second transaction comprising operations in India is conditional on governmental approvals and expected to close before year end. The transactions will be financed by already available funds, existing credit facilities, a share issue in kind to the sellers and a proposed share issue of approximately SEK 850 million ($105 million) with preferential rights for existing shareholders.

The combined businesses to be acquired had 2015 preliminary net sales of approximately SEK 745 million ($92 million), corresponding to 22% of Recipharm's 2015 total net sales. Kemwell’s current Managing Director, Anurag Bagaria, and Vice President of Corporate Development, Karan Bagaria, will continue in their current positions post closing.

The US development business is located in Research Triangle Park, North Carolina and employs around 50 people. There are about 120 customers and services include development of inhalation, liquid, semi-solid, solid and parenteral products with emphasis on early formulation work as well as development of analytical methods and testing. Recently, the business commissioned a GMP suite to expand manufacturing of clinical trial material. The services are provided either on a stand-alone basis or as a more comprehensive pharmaceutical product development program.

The Swedish business is located in Uppsala and employs around 210 people. It consists of two production units, including a fully integrated primary and secondary manufacturing facility dedicated to a limited number of products, based on the same active pharmaceutical ingredients (APIs) and supplied essentially to one Big Pharma customer. There is also a small general pharmaceutical manufacturing unit. Manufacturing services offering include APIs, solids and semi-solid formulations. More than 95of the Swedish production is exported to over 60 countries, including the US and Japan.

Kemwell's India business was founded by Subhash Bagaria. The acquired Indian business is expected to employ around 1,400 people at closing of the acquisition, and comprises both development services as well as commercial manufacturing of solid, semi-solid, liquid and topical dose products. The solid dosage plant was commissioned in 2008 and has approvals from the US and European Union regulatory authorities. The oral liquids production plant was commissioned in 2011 and is specialized in automated high throughput large volume manufacturing, mainly for the Indian subcontinent. The development business is a rapidly growing business with a comprehensive service offering, including formulation development, small-scale manufacturing for clinical trials, and a large analytical services business.

The acquisition price for Kemwell's operations in the US and Sweden amounts to approximately $85 million on a cash and debt free basis, and will be paid to the sellers, Kemfin Holdings Private Ltd, and, with t regards to the Swedish operations, a minor additional owner for approximately $30 million in cash as well as through an issue in kind of class B shares in Recipharm corresponding to a value of $55 million All financial debt will be settled at closing of the acquisition. The number of shares in the issue in kind will be based on an agreed subscription price, calculated as the average of the volume weighted average share price for (i) 20 trading days prior to the day for signing of the acquisition agreement and (ii) 20 trading days prior to the date for the EGM, adjusted for nonoccurring dividend for the financial year 2015. The share issue in kind requires that the board of directors receives the necessary authorization from Recipharm's shareholders at an Extra General Meeting to be held on May 10, 2016. Kemfin will become a meaningful shareholder in Recipharm. Kemfin and the minority owner have committed to a 12-month lock-up period as well as undertaken to subscribe for their pro rata shares in the proposed rights issue. Recipharm will finance the cash portion of the purchase price through available funds and existing credit facilities. Closing of the transaction is expected to take place during the second quarter of 2016, subject to review by the Swedish Competition Authority. The transaction is also subject to confirmation from a third party regarding certain commitments.

The acquisition price for the operations in India amounts to $120 million on a cash and debt free basis.6 The consideration will be paid in cash to the sellers, the founding Bagaria family8 and parties related to the family, at closing of the acquisition, which is expected to take place before year end. The final price will be subject to adjustments for changes in currency exchange rates. All financial debt will be settled at closing of the acquisition. The transaction is subject to governmental approvals, including approval from the Indian Foreign Investment Promotion Board.

Recipharm's two main shareholders, Flerie Participation AB, which is controlled by Recipharm's CEO Thomas Eldered, and Cajelo Invest AB, which is controlled by Recipharm's chairman Lars Backsell, who control 20.6$ and 12.9% of the share capital respectively and 41.1$ and 38.7% of the votes respectively, have committed to vote for the proposed rights issue at the Extra General Meeting and subscribe for their pro rata shares in the proposed rights issue. In addition, Lannebo Fonder, Första AP-fonden,and Fjärde AP-fonden, who together control 24.8 % of the share capital and 7.5% of the votes for the proposed rights issue at the Extra General Meeting and indicated their intention to subscribe for their respective pro rata shares in the proposed rights issue.

Source: Recipharm