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KABI-PHARMACIA $1.3 BIL. HEALTHCARE GROUP

Executive Summary

KABI-PHARMACIA $1.3 BIL. HEALTHCARE GROUP is being created through the merger of the Kabi Group's parent, Procordia AB, and Pharmacia AB. According to a prospectus filed April 17 with the Securities and Exchange Commission, the newly combined health care operations of the two companies "will be among the 20 largest companies in Europe," with sales of approximately SEK 12 bil., or about $1.3 bil. The health care merger is part of a plan announced Dec. 12 by the Swedish-based international diversified companies Volvo and Procordia to create a new therapeutics/ophthalmology/diagnostics/biotechnology unit via the acquisition of Pharmacia. The plan will also combine substantial food operations. Kabi-Pharmacia will be headed by Kabi's current president, Jan Ekberg, who has been at the helm of Kabi since 1985. Erik Danielsson, Pharmacia's current president, is expected to become exec VP and deputy CEO of Procordia, responsible for the group healthcare/biotechnology sector. The Kabi Group pharmaceuticals and healthcare sector accounted for $140 mil. of Procordia's $3.2 bil. in total sales for 1989. Pharmacia's 1989 worldwide sales were $1.2 bil., with medical products generating $1.1 bil. of that total. The Kabi Group is comprised of four units. The largest, Kabi Biopharma, generated 43% ($60 mil.) of Kabi's total sales last year. The unit handles peptide hormone, cardiovascular and plasma products. Kabi Nutrition -- total parenteral nutrition, standard solutions and drug emulsions products -- accounted for 36% of total sales, while Kabi Pharma (urology/gynecology and Rx drugs) generated 14% of Kabi Group revenues. Kabi's ACO unit handles OTCs and preventive and skin care products, which account for about 7% of group sales. Kabi Group sales to North America were about 28% of the total, according to the prospectus. The much larger Pharmacia healthcare operations also break down into four general product areas: therapeutics, biotechnology products, diagnostics and ophthalmology products. Therapeutics was 33% of the total business last year; biotech products, 24%; diagnostics, 22% and ophthalmology 17%. Therapeutics sales worldwide rose 12% on a continuing basis at Pharmacia, which says it controls approximately 50% of the world drug delivery systems market. The company also claims to control 20% of the world biotechnology equipment and production market. That position hurt growth last year as the firm was "hit...hard" by flat revenues for its biotech equipment business. "Particularly weak" was the market for protein separation, the segment "in which Pharmacia's position is the strongest," the prospectus says. For example, sales in that segment declined 7% in the U.S. Pharmacia diagnostic product sales increased 36% overall. Ophthalmics sales rose 13%, with Healon revenues up 11% and intraocular lens revenues up 16%. In the U.S., which is Pharmacia's largest ophthalmics market, the hyaluronic acid product Healon retained its 60% share, "although sales declined as a result of increased competition and the saturated state of the market," the prospectus states. IOLs are "somewhat more than" 30% of Pharmacia's ophthalmics market in total. Under the proposed merger deal, Procordia is offering to buy back U.S. securities. In the exchange, Pharmacia shareholders would receive money and shares in Procordia not intended for U.S. trading. Separately, Volvo is offering a cash tender offer for Pharmacia. The U.S. offer was given the go-ahead by the SEC on Feb. 5. Concurrent foreign offers are underway. Following consummation of the U.S. and foreign offers, the Swedish State and Volvo will co-own the new Procordia Group, each controlling shares representing approximately 43% of Procordia voting shares outstanding. According to press materials distributed in Europe last year and included in the prospectus, Procordia/Pharmacia/Provendor combined will be "one of the 25 largest commercial concerns in Europe and one of the largest companies in the Nordic region," with sales of nearly $6 bil. The merged food sector of Procardia and Volvo's Provendor will have worldwide sales of about $2.7 bil. Provendor's 1989 sales were $1.4 bil., according to data in the prospectus, indicating a similar size for the Procordia food business.(ITEM 150)EDITORS' NOTE: Currency translation rate as of Dec. 31 -- 6.21 Swedish Kroner = $1.
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