Though the corporate marriage lasted only a year, Abraxis BioScience Inc. Chief Executive Patrick Soon-Shiong insists he has no regrets about giving it a shot.
The former UCLA surgeon and researcher announced last week that Abraxis would separate its Illinois-based generic drug manufacturing arm, known as American Pharmaceutical Partners Inc. prior to the June 2006 merger, back into its own public company, which will be called APP Inc.
Los Angeles-based Abraxis, formerly known as privately held American BioScience Inc., will keep its proprietary cancer drug and research-and-development operations here and will continue to trade on the Nasdaq under its existing name and ticker symbol.
Soon-Shiong notes that over the past year Abraxis has acquired new products for the generics business, bought a Pfizer plant in Puerto Rico that significantly expands manufacturing capability, and now has secured bank loans that will help build the worldwide market for its leading proprietary cancer drug Abraxane and develop its experimental pipeline.
“There are so many things we’ve been able to accomplish in the past year as the result of being one company,” Soon-Shiong said in an interview following the July 2 announcement. “None of it would have been possible if we had stayed two companies.”
For existing shareholders, the spin-off means they’ll receive one share of stock in each company for every share they now own in the existing enterprise.
“We think now that separating the two companies will unlock the value of both, now that they’ll be able to focus on their respective pipelines,” said Soon-Shiong, who will continue as chairman and chief executive for each company at least for the time being. He says that he may relinquish the CEO role at APP when he finds the right successor.
That prospect could be a relief to investors who may be interested in one or both of the companies but are leery of Soon-Shiong’s tight control, which often seemed to favor sexier biotech R & D; over the stodgier generics business. Soon-Shiong founded both companies in the early 1990s and continued to be the majority shareholder post-merger, controlling more than three quarters of outstanding shares.
Shares of APP, which had $583 million in revenue last year, stand a reasonable chance of getting back up to the American Pharmaceutical’s pre-merger price of $39.25. That company not only had a strong stable of hard-to-manufacture generic injectable drugs, but also added to its product line by obtaining AstraZeneca plc’s $200-million-a-year injectable portfolio of anesthetic and analgesic drugs.
London-based AstraZeneca also put its considerable marketing and distribution muscle behind Abraxis’ star proprietary cancer drug, Abraxane, whose sales got a slow start following its 2005 launch. Revenue has since picked up steam, with net sales of $285 million to $308 million expected this year.
Soon-Shiong admits the combined company has had a hard time convincing equity analysts and some investors of the value of Abraxis as a hybrid company with both proprietary and generic operations, which tend to attract different types of investors. Shares were trading at $22.53 on July 2, around 46 percent lower than American Pharmaceutical’s stock prior to the merger.
Analysts who have covered the company since its American Pharmaceutical days won’t quibble with that assessment, and continue to be skeptical that this latest turn will be in the best interests of longtime shareholders.
Megan Murphy at Lazard Capital Markets LLC notes that American Pharmaceutical shareholders were asked to take the additional risk of the biotech business when it became part of Abraxis. Now APP, with its larger revenue stream, will be responsible for almost $1.45 billion in new debt, a billion of which will be given to Abraxis to fund ongoing R & D.;
“The shares have been heavily discounted lately due to a lack of execution and general concern over the generics business due to it having been starved for capital investment and upgrading,” Murphy said. “The market knew (Soon-Shiong) needed money and was discounting the stock accordingly.”
RadNet Refinances Debt
RadNet Inc. also is rejiggering its debt, albeit by a simpler route than Abraxis.
The Los Angeles-based operator of 132 outpatient diagnostic imaging centers said last week that GE Healthcare Financial Services is arranging a $445 million senior secured credit facility, which includes a $400 million term loan and a $45 million revolving line of credit. The deal not only refinances nearly all of RadNet’s existing indebtedness but will provide capital for future expansion.
RadNet Chief Financial Officer Mark Stolper said in a statement that the refinancing, expected to close in August, is expected to result in annual interest cost savings of approximately $5.4 million.
The company has been growing through acquisitions over the past year, most recently announcing in May that it would buy Rochester, N.Y.-based Borg Imaging Group for $12 million in cash. Last year the company acquired Dallas-based Radiologix Inc. in a cash-and-stock transaction valued at $208 million. Investors appeared pleased with the refinancing, sending Radnet shares up 3 percent to $10.05 a share after the transaction was announced July 5.
Staff reporter Deborah Crowe can be reached at
[email protected]
m or at (323) 549-5225, ext. 232.
