The completion of its earlier announced acquisition in the EU is an important milestone in ARBN?s efforts to scale up globally and would be a key factor driving stock performance in future
Upfront consideration is manageable and potential synergies exist, but the scale/spread of the business adds complexity. Strong, timely execution could drive earnings upgrades while any slip – ups could weigh on margins and valuations.
ARBN?s acquisition of Actavis? businesses in Western EU gives it scale (cUS$400m incremental sales) and market access (7 countries) as well as an established hospitals sales network to distribute its injectables and specialty products.
Quick Turnaround is Crucial ? the acquired businesses incur annual losses of euro 20 million (albeit declining steadily) and would suppress ARBN?s margins upfront. ARBN intends to work on fixed costs as well as integrate these into its India ? based supply chain and expects to achieve breakeven within a year. We believe its ability to meet this timeline could be a key factor driving the stock. Our estimates currently build in losses in FY15 and FY16, as we await signs of progress on this front.
ARBN continues to make progress in the US, driven by a steady stream of new approvals and favourable dynamics in gCymbalta. It received 5 ANDA approvals (2 tentative) in 4Q, taking the total count in FY14 to 19. Its market share in Cymbalta remains healthy (c 24 %) and pricing remains stronger than expected. We expect the latter to drive strong earnings in 4Q and, if competitive dynamics do not worsen, drive earnings upgrades in FY15.
Key catalysts are strong Q4 FY14 earnings and trends in the gCymbalta market in the US.