Cephalon Inc. to acquire Mepha AG for $590 million

Cephalon Inc. announced Feb. 1 that will acquire Swiss pharmaceutical company Mepha AG and its subsidiaries for an estimated $590 million, subject to adjustments upon closing. The transaction is expected to close in the next 10 to 12 weeks, depending upon completion of certain closing conditions, including receipt of applicable antitrust approvals.

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MAISONS-ALFORT, France—Cephalon Inc. announcedFeb. 1 that will acquire Swiss pharmaceutical company Mepha AG and itssubsidiaries for an estimated $590 million, subject to adjustments uponclosing. The transaction is expected to close in the next 10 to 12 weeks,depending upon completion of certain closing conditions, including receipt ofapplicable antitrust approvals.
"The addition of Mepha will transform ourinternational business overnight, expanding our ability to serve global marketsand reach patients in new territories for the first time," says Dr. FrankBaldino Jr., chairman and CEO of Cephalon.
"With this deal, we now serve allthree types of pharmaceutical markets: proprietary branded, generic and brandedgeneric. We believe this balance will increase the growth and stability of ourbusiness."
Cephalon expects that the acquisition will beaccretive to adjusted earnings per share in 2010 and will update its 2010guidance when it reports full-year 2009 financial results on Feb. 11, 2010. Inthe interim, the company has withdrawn its full-year 2010 guidance issued onOct. 27, 2009. 
"The acquisition of Mepha will help us tosignificantly grow our current business and positions us as a more attractivepartner for further business development opportunities in the European, MiddleEast and African regions," notes Alain Aragues, executive vice president andpresident of Cephalon Europe.
Mepha manufactures and markets more than 120products in 50 countries, and has achieved compound annual growth rates insales of more than 13 percent over the last five years. In addition to itsexisting products, Mepha has a broad pipeline of approximately 50 chemicalentities planned for launch over the next five years. Mepha has specific expertisein innovative dosage formulations and markets both generic and branded genericproducts.
"The European market has traditionally been ageneric and branded generic market," Baldino points out. "That's what theywant, that's what they're paying for."
"Mepha and Cephalon complement each other as faras markets and products are concerned. Mepha's leading position on the Swissmarket will be immediately enhanced by the addition of innovative therapiesfrom Cephalon," says Dr. Thomas Villiger, CEO of Mepha Group.
Cephalon is best recognized for the success of itsleep disorder drug Provigil, but it also sells Nuvigil, a successor drug toProvigil, as well as pain management product Fentora and cancer drug Treanda.
The addition of Mepha significantly increases its product line and reach, withBaldino saying "This gives us more stuff to sell and more territories to sellit in" during a conference call with investors. However, Baldino said he doesnot predict his company's earnings growth rate will change "radically" from itshistorical growth rate.
The acquisition was somewhat of a surprise toindustry-watchers, even by Cephalon's usual unpredictable standards.
"We've always thought it futile to guessCephalon's next target, as they've made a living snagging unknown/overlookedassets," Corey Davis, an analyst at Jefferies & Co., noted in response tothe deal. Still, it is a departure from the usual mergers and acquisitionsstrategy at Cephalon, with Davis saying, "This acquisition is far differentfrom its recent smaller deals which leaned back towards its 'biotech' roots."
Also, he has noted, Cephalon is known moretypically for acquiring individual products, or options on products.
Baldino himself acknowledged the distinctivenessof this deal, when he noted that bidding was intense, and added, "We werecompeting with different people than we have in the past, and there were anumber of companies involved to the bitter end."
With its acquisition of Mepha, Cephalon gains aproduct line that includes treatments for anemia, schizophrenia, bacterialinfections, pain, cardiovascular disease, allergies, hypertension, malaria,respiratory tract infections, ulcers, cough, and mood and anxiety disorders.

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