Emergent Rises on Cangene Deal

Zacks

Emergent BioSolutions Inc.’s (EBS) shares were up around 5.4% on Dec 12 to end the day’s trading session at $22.45. The stock was boosted on the announcement that it would acquire Cangene Corporation for an aggregate purchase price of $222 million.

The Deal in Details

Earlier in the week Emergent BioSolutions entered into a definitive agreement with Cangene to acquire all outstanding common shares of the latter for $3.24 per share. Emergent BioSolutions expects to fund the deal through its cash balance and the new bank facility.  Furthermore, the company expects there will be around $35 million cash balance from Cangene at the time of closing of the transaction.

The company expects to complete the acquisition by Mar 2013. The deal, approved by the Boards of Directors of both companies, is expected to be accretive in 2014 (exclusive of transaction-related costs).

With the acquisition of Cangene, Emergent BioSolutions will acquire biodefense products like Bat (botulinum neurotoxin serotypes A, B, C, D, E, F or G), Vigiv (complications due to smallpox vaccination including eczema vaccinatum, progressive vaccinia, severe generalized vaccinia, vaccinia infections), episil (pain) and Aigiv (toxemia associated with symptomatic inhalational anthrax) following the completion of the deal. Cangene recorded revenues of around $50 million for its fiscal year ended Jul 31, 2013 from its biodefense business.

Emergent BioSolutions will also get access to commercial products like WinRho SDF (hemolytic disease of the newborn), HepaGam B (Hepatitis B recurrence following liver transplant in HBsAg-positive liver transplant patients and post-exposure prophylaxis) and Varizig (chickenpox infections). Cangene recorded sales of $44 million from its commercial products for the fiscal year ended Jul 31, 2013.

Guidance

Apart from announcing its intention to acquire Cangene, Emergent BioSolutions also provided its guidance from 2013 to 2018. The company expects its full year 2013 total revenue guidance at $300 to $310 million and adjusted net income guidance at $30 to $35 million.

Emergent BioSolutions expects the Cangene acquisition to contribute $90 to $100 million to the company’s top line for the partial year period of 2014. Moreover, a compound annual growth rate of 4% to 6% is expected over the next three year period of 2015 to 2018.

Our Take

We are encouraged by Emergent’s impending acquisition of Cangene. The acquisition of Cangene, which recorded approximately $436 million as total revenues in fiscal 2013, will boost Emergent BioSolutions’ top-line in the coming quarters. Moreover, Cangene has a diversified portfolio, which reduces risk significantly. We expect investor focus to stay on this deal.

Emergent presently carries a Zacks Rank #3 (Hold). Some better ranked stocks include Actelion Ltd. (ALIOF), Forest Laboratories Inc. (FRX) and Jazz Pharmaceuticals (JAZZ). All these stocks hold a Zacks Rank #1 (Strong Buy).

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