By Naomi Kresge
March 16 (Bloomberg) -- Stada Arzneimittel AG, the German generic-drug maker that said as recently as November it might sell shares to fund acquisitions, may be turning from hunter to prey after losing three quarters of its value in eight months.
Falling drug prices in Germany and an ill-timed expansion into eastern Europe have pushed the stock down as low as 10 euros, less than the cost of a 30-pill supply of its version of Merck & Co.’s Zocor cholesterol drug. With a market value of about 655 million euros ($847 million), Stada shares trade about 6.4 times estimated earnings, compared with a median of 14 for other western European drugmakers, according to Bloomberg data.
The share retreat puts Stada out of the running to buy Ratiopharm GmbH of Germany and Iceland’s Actavis Group hf just as those companies are being put up for sale, said Leslie Iltgen of Bankhaus Lampe KG. Instead, pharmaceutical companies Sanofi- Aventis SA, AstraZeneca Plc and Teva Pharmaceutical Industries Ltd. may be adding Stada to their list of potential targets, said Thomas Maul, a Frankfurt-based analyst at DZ Bank AG.
“They’re in a so-called sandwich position,” said Iltgen, a Dusseldorf-based analyst who recommends buying the shares. “It makes it harder for them to take over a bigger company, because they’d have to get financing or do a capital increase.”
Stada shares rose as much as 6.3 percent, and traded up 69 cents at 11.84 euros at 9:32 a.m. in Frankfurt trading. The stock has fallen 73 percent from its peak of the past year, reached July 23.
Merger Conceivable
As recently as Nov. 13, Chief Executive Officer Hartmut Retzlaff said a capital increase to fund acquisitions was “imaginable.” The Bad Vilbel-based company also said it had more than 500 million euros in unused short-term credit available for purchases. A merger would be conceivable, though Stada would want to retain the “controlling position,” Retzlaff told analysts in August. Stada spokesman Axel Mueller declined to comment for this story.
Acquisitions by Teva, Novartis’s Sandoz and Mylan Inc. have widened the gap between Stada and the industry leaders in a $75 billion market that is driven by volume. The drugmaker, which competes with Ratiopharm and Sandoz on its home market, had fallen to sixth from fifth worldwide by Sept. 30. Ratiopharm and Actavis, fourth and fifth-placed, are being sold to pay down debt owed by their billionaire owners.
“Stada is the last publicly traded pure-play generics company in western Europe,” said DZ Bank’s Maul. “One could speak of paying a scarcity premium.”
Currency Woes
Stada expanded in eastern Europe from 2005 to 2007, just before currencies in the region plunged and economies weakened. Its 480 million-euro acquisition of Serbia’s Hemofarm Koncern AD in 2006 was the company’s biggest. Stada also bought Russia’s Makiz for as much as 135 million euros in 2007 and Nizhpharm OAO in 2005.
Currency declines in Serbia and Russia contributed to a 27 percent drop in net income last year, Stada said March 3. The company backed away from further Russian acquisitions last month, saying it has “no interest” in takeovers in the region. Stada had been among possible bidders for Russia’s OAO Veropharm, Kommersant reported last month.
On March 2, Stada said net income slid 27 percent last year and cut its dividend. The company predicted earnings will fall in the first half of this year, and said a second-half recovery may not be sufficient to prevent a full-year decline. The shares slumped to an eight-year low.
Stada’s enterprise value -- a measure used to price takeovers by subtracting a company’s cash from its debt and market capitalization -- now is about equal to its annual sales, according to Ulrich Huwald of MM Warburg Investment Research. The median for European drugmakers’ is about 2.7 times sales, according to Bloomberg data.
Consider Offers
“At this level, I could imagine it would be interesting for some firms,” said Daniel Wendorff, an analyst at Commerzbank in Frankfurt. Stada’s earnings performance in the next six months may sway its management to consider offers, Wendorff said. “If we don’t see a turnaround, I could imagine it.”
Drugmakers are turning to the generic drugs market as a way to diversify their businesses and fight slowing growth in branded pharmaceuticals.
DZ Bank’s Maul put Stada atop a list of takeover candidates in July after Sanofi, France’s largest drugmaker, offered to buy control of Czech generic-drug maker Zentiva NV and Teva agreed to buy Barr Pharmaceuticals Inc. for $7.46 billion. Sanofi completed its 1.8 billion-euro purchase of Zentiva this month.
Possible Suitors
Paris-based Sanofi and Petah Tikva, Israel-based Teva, potential bidders for Actavis and Ratiopharm, are also possible suitors for Stada, Maul said. London-based AstraZeneca may also be interested in Stada, he said.
Jean-Marc Podvin, a spokesman for Paris-based Sanofi, declined to comment on the company’s acquisition strategy. CEO Chris Viehbacher said he’s seeking “small to medium-sized” acquisitions to replace revenue lost to generic competition. Zentiva is “a typical example of the type of acquisition that I want our company to make,” Viehbacher said last month.
Teva spokeswoman Ayala Miller and AstraZeneca spokeswoman Sarah Lindgreen declined to comment.
Stada may be attractive because, unlike Ratiopharm, it has cut costs and transferred production to lower-cost countries, Bankhaus Lampe’s Iltgen said.
“I think Ratiopharm still has to do some work,” Iltgen said. “Why not take the player that is better set up to compete?”
To contact the reporter on this story: Naomi Kresge in Zurich at nkresge@bloomberg.net
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