Stadas Plunging Stock Price Turns Generic-drug Hunter to Prey
Falling drug prices in Germany and an ill-timed expansion into eastern Europe have pushed the stock down to 11.15 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 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 Icelands 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.
“Theyre 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 theyd have to get financing or do a capital increase.”
Stada shares have fallen 77 percent in Frankfurt trading from their peak of the past year, reached July 23. The stock fell 2 cents, or 0.2 percent, to close at 11.15 euros last week.
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, Novartiss 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 Banks 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 Serbias Hemofarm Koncern AD in 2006 was the companys biggest. Stada also bought Russias 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 Russias OAO Veropharm, Kommersant reported last month.
Stadas enterprise value — a measure used to price takeovers by subtracting a companys 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. Stadas earnings performance in the next six months may sway its management to consider offers, Wendorff said. “If we dont 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 Banks Maul put Stada atop a list of takeover candidates in July after Sanofi, Frances 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.