Mallinckrodt entered into a definitive agreement with Cadence Pharma whereby the former will commence a tender offer to acquire all outstanding shares of the latter for $14.00 per share in cash or approximately $1.3 billion.
The offer price of $14.00 per share represents a 32% premium to the trailing 30-trading-day volume weighted average price of $10.62 per share for Cadence Pharma.
Both the companies expect to close the transaction next month. Mallinckrodt expects the acquisition to be immediately accretive to its bottom line in fiscal 2014. The accretion to the bottom line in fiscal 2015 is expected to be more significant.
Cadence Pharma’s sole approved product, Ofirmev, is indicated to manage pain with adjunctive opioid analgesics as well as for the reduction of fever. Ofirmev is Cadence Pharma’s proprietary intravenous formulation of acetaminophen.
We remind investors that the exclusive rights to Ofirmev in the U.S. and Canada were acquired by Cadence Pharma from Bristol-Myers Squibb (BMY) in 2006. The drug is marketed by Bristol-Myers as Perfalgan in Europe and other parts of the world. Ofirmev was approved in the U.S. in Nov 2010.
The addition of Ofirmev to Mallinckrodt's kitty will further strengthen its specialty pharma segment which consists of controlled substance generics and brands like Exalgo, Gablofen and Pennsaid. Moreover, the acquisition will also add another potential growth area for Mallinckrodt given Cadence Pharma's strong presence in the hospital market.
We note that Cadence Pharma expects net product revenues from sales of Ofirmev injection of $33.3 million in the fourth quarter. For 2013, net revenues are projected at $110.5 million. The growth in Ofirmev sales is fueled by robust demand.
Cadence expects net product revenue from sales of Ofirmev in 2014 to come between $173.0 million and $177.0 million.
We are positive on Mallinckrodt's acquisition of Cadence Pharma. The year 2014 is critical for Mallinckrodt with its key pain product Exalgo losing exclusivity. The company expects Exalgo sales to decrease in fiscal 2014.
Hence, we believe that the acquisition will be a strategic fit for Mallinckrodt. Sales of Ofirmev have been robust and will boost Mallinckrodt's top line besides providing an opportunity to diversify in the adjacent hospital market.
Cadence Pharma currently holds a Zacks Rank #3 (Hold) while Mallinckrodt carries a Zacks Rank #2 (Buy). Right now, Forest Laboratories (FRX) also looks attractive with a Zacks Rank #1 (Strong Buy).