Akorn Take-Out Chatter Supported By Trend Of Consolidation In Generic Drug Companies

A Bloomberg article Friday suggested that the European company Fresenius Medical Care AG & Co. (ADR) FMS is considering a bid for Akorn, Inc. AKRX.

While there is lack of certainty regarding whether such a deal would materialize and at what price, “we continue to believe that consolidation of small/medium-sized generic companies is inevitable,” Deutsche Bank’s Gregg Gilbert said in a report. He maintains a Hold rating on Akorn, with a price a target of $24, while adding that a takeout could lend upside.

Rationale Of Deal

Fresenius’ generic business is focused mainly on injectable products. The acquisition of Akorn would add some injectables, “but would also add other types of products (eg, ophthalmics, creams, oral solids) as well as channels (eg, retail vs. hospitals/clinics, where most injectables are sold),” the analyst noted.

An overlap analysis suggests that overlap would not be an issue with this deal.

Rationale For The Hold Rating

Akorn’s shares have risen, following their post-Q3 correction, and “any upside from here will have more to do with the hard-to-call dynamics of new product approvals vs. base business erosion,” Gilbert mentioned.

The company does have several generic applications at the FDA “that should help offset a shrinking base, but this dynamic could be especially challenging over the next 6–12 months in light of expected significant share erosion for the very high-margin ephedrine line,” which currently contributes about 19 percent of revenue, the analyst added.

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