The recently announced acquisition by Genepharm of Douglas...

The recently announced acquisition by Genepharm of Douglas Pharmaceuticals Australia Limited seems a perfect fit. The GAA website states they are paying $70 million for the business, valuing it at 11 x 2005-206 EBITDA. Payment is to be made by $55 million cash (presumably a combination of institutional placement / rights issue) and $15 million convertible notes.
It would seem GAA’s initial strategy after listing was to register generic drugs with the Therapeutic Goods Administration in Canberra as those drugs exit patent then to distribute them to hospitals and pharmacies and thereby build a broad suite of generic drugs. A smart and simple business model.
However they may not have fully considered the statutory period the TGA can take to register a generic drug application – up to 255 days (without allowing for queries) and how this could hold back a rapid generic drug development plan. The recent share price tendency of GAA suggests the market was beginning to see this.
From my discussions with pharmacists the big attraction to them is a company which has a broad range of drugs. The timeframe it would have taken GAA to register a broad range of generics and therefore become market competitive could have been very protracted.
From its website http://www.douglas.com.au/products.html it would seem that Douglas has about 60 or more drugs registered. For GAA to register 60 drugs could have taken many many years.
The acquisition of Douglas should therefore give GAA in 2006 the depth of range in product it needs to compete with Alphapharm (industry rank no.1) and Sigma (no. 2) and so become the no. 3 generics provider in Australia. It could therefore be described as “a company transforming deal.”
It will probably put them in a position it could have taken many years for them to reach alone.
One could therefore reasonably expect that GAA will become cash flow positive and in a position to pay its first dividend in FY 2006/2007.
I hold GAA shares. I have done my own homework. Do your own. I make no recommendation.