Alpharma pockets $395m for API biz

The API business specialises in fermented antibiotics, with particular investment over recent years in vancomycin production capacity. The 3i purchase includes the business's five production sites (Oslo, Copenhagen, Budapest, Taiwan and China), which between them currently produce 14 different API products. The deal is expected to close in the second quarter 2008, with net proceeds to Alpharma of $365m after taxes, fees and expenses. The API division reported operating income of $30.7m for the nine months ending September 2007. Although Alpharma has been investing in its API business to keep up with the ever-changing environment in the pharmaceutical industry, it was thought to be a wiser decision to sell off the division for a favourable sum now, and focus on the company's pharmaceutical and animal health units. "We continue to see a number of very attractive strategic options in both the pharmaceutical and animal health businesses, and in our judgement, these present better options for Alpharma than further API investments,"​ explain CEO Dean Mitchell during a conference call following the news. "We therefore made the choice that concentrating our focus on opportunities in pharmaceuticals and animal health would be better for our shareholders, and that we should take the funds from the API divestment to accelerate growth in our other businesses." It was also thought that simplifying the company's business by hiving off the API unit would make "the Alpharma story easier to understand form and investor perspective."​ The attractive purchase price is somewhat thanks to the continued investments Alpharma has made in the API business to support the growing generics industry, with 3i commenting on the unit's "excellent prospects for further growth​" and its plans to build on the company's position in the injectable antibiotics market. It appears that Alpharma at least partly made the decision to divest its API segment due to increased pressure form low cost economies that threaten to change the face of the market so significantly, leaving the market before conditions became too unstable for those in established markets. "We're seeing a lot of global change in API, principally driven by the emergence of Indian and Chinese competitors who have very different expectations in terms of profitability they expect to see form their API businesses,"​ commented Mitchell. "​More importantly, I think we're seeing quite an interesting transformations with a lot of big pharma companies starting to become very much more concerned about their cost-base and becoming much more opened-minded…about sourcing their API products from low-cost markets." "So…that means the business is going to undergo fundamental change over the next two to three years, and if we just stood on the sidelines and just watched that, I think part of the concern would be that we'd have a API business as a specialty business that was fundamentally not competitive long-term." ​ With this in mind, Alpharma will use the funds from the API sale to push its pharmaceutical and animal health divisions, as well as a potential share repurchase program. 3i has over 15 years' experience investing in pharma companies such as Betapharm and Domantis, and will install industrialist in residence Peter Chambré as a non-executive chairman to the company when the transaction completes later this year.