Fresenius Kabi to strengthen and diversify product portfolio by acquiring Akorn and Merck KGaA’s biosimilars business

Transactions provide access to attractive pharmaceutical growth markets.

Akorn produces and markets a diverse product portfolio of injectables, topical creams, ointments and gels, sterile ophthalmics, as well as oral liquids, otic solutions (for the ear), nasal sprays and respiratory drugs. Akorn products are sold in retail pharmacies (prescription and OTC) and directly to physicians, in addition to hospitals and clinics – almost exclusively in the US.

Akorn participates in a total US market of approximately $106 billion. Akorn’s current product pipeline of pending ANDAs (Abbreviated New Drug Approvals) has a total addressable IMS market value of $9.3 billion. The company employs more than 2,000 people and has three R&D centers and five manufacturing facilities in the US, Switzerland and India. The US headquarters for Akorn and Fresenius Kabi are both in Northern Illinois, located in close proximity.

“Bringing together our two companies and product portfolios will strengthen and diversify our business in the US,” said Mats Henriksson, CEO of Fresenius Kabi. “Akorn brings to Fresenius Kabi specialized expertise in development, manufacturing and marketing of dosage forms currently not available in our portfolio, as well as access to new customer segments and products. Akorn’s pipeline is impressive, with approximately 85 ANDAs filed and pending with the FDA and dozens more in development.”

Mid-term, the acquisition is expected to create cost and growth synergies of approximately US$100 million p.a. before tax. Fresenius Kabi expects a progressive ramp-up of those synergies which will be achieved by integrating and modernizing Akorn’s production network and by combining other functions. For the period from 2018 to 2022, Fresenius Kabi expects integration costs of approximately $140 million before tax in total. The integration costs are projected to be frontloaded with the major impact in 2018.

Fresenius has also agree to to acquire Merck KGaA'ss biosimilars business, which comprises the entire development pipeline and an experienced team of more than 70 employees located in Aubonne and Vevey, Switzerland. The product pipeline has a focus on oncology and autoimmune diseases with current branded sales of around US$30 billion.

Fresenius Kabi expects first sales towards the end of 2019 and estimates to ramp-up the business to high triple-digit million sales from 2023 onwards based on the current product development schedule. Fresenius Kabi has agreed to pay single digit percentage royalties to Merck based on sales.

Mats Henriksson said: “Biosimilars are a fast-growing segment within the pharmaceutical market. Some of the largest biological branded products will go off patent over the next years. With this acquisition, Fresenius Kabi enhances its position as a leading player in the injectables pharmaceutical market and further diversifies its product portfolio. The acquisition creates a platform for further growth.”

The purchase price will be up to €670 million. Thereof, €170 million will be paid in cash upon closing. Approximately €500 million are milestone payments strictly tied to achievements of development targets. Analytical testing, clinical studies, quality requirements specific to biosimilars as well as marketing and sales activities are expected to result in increased costs for Fresenius Kabi. These costs are expected to occur in uneven tranches. The total expected cash-out and self-imposed investment ceiling is estimated to be up to €1.4 billion until projected EBITDA break-even in 2022. From 2023 onwards, the acquisition is expected to be significantly accretive to Group net income and Group EPS.