Leiner To Bolster OTC Capabilities With Purchase of PFI Assets
This article was originally published in The Tan Sheet
Executive Summary
Private-labeler Leiner expects to significantly expand its OTC presence and market share with the proposed purchase of assets from Edison, N.J.-based Pharmaceutical Formulations, Inc. (PFI)
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Private-labeler Leiner expects to significantly expand its OTC presence and market share with the proposed purchase of assets from Edison, N.J.-based Pharmaceutical Formulations, Inc. (PFI). Leiner plans to purchase "substantially all of the assets related to PFI's OTC solid-dose pharmaceutical products business," subject to a bankruptcy action and court approvals, the firm announced July 11. PFI filed for Chapter 11 bankruptcy protection in Delaware the same day. Leiner will pick up ANDA approvals for ibuprofen tablets and capsules while expanding its customer base in OTC retailers if the deal is completed. Carson, Calif.-based Leiner will pay $23 mil. plus the "assumption of certain trade payables (adjusted to reflect a working capital at closing of $10.79 mil.)," according to PFI. The agreement between the firms is subject to PFI considering higher bids and requires the sale to be completed by Sept. 23. PFI's wholly-owned subsidiary Konsyl Pharmaceuticals is not included in the sale or in PFI's Chapter 11 filing. PFI assets include current ANDA approvals for ibuprofen tablets and capsules, ibuprofen cold & sinus, naproxen sodium and cimetidine. The purchase would bring Leiner new customer contacts among OTC retailers. PFI cites Kmart, Walgreens and Albertsons among its store-brand customers. Leiner also increases its manufacturing scale in OTCs if the deal goes through: PFI is one of the "largest prime manufacturers of solid dose OTC tablets, caplets, capsules and gelatin tablets," the firm says. The deal would serve to expand Leiner's contract manufacturing business. PFI currently operates as a contract manufacturer for branded OTCs. Branded customers "depend on PFI for our ability to assist in developing new products quickly and manufacture those products according to the stringent requirements for market launch," the firm maintains. PFI also sells bulk product to other manufacturers for repackaging. PFI and Leiner will work together "to ensure that there will not be any interruption in service to PFI's customers and that it will be 'business as usual' from the customers' point of view during the period before the finalization of the transaction as Leiner takes over production at its locations after the transaction closes." Under its bankruptcy filing, PFI is seeking debtor-in-possession financing under a revolving credit facility in the amount of $14 mil., in order to meet operating needs and complete the sale at maximum value. PFI expects to close its Edison, N.J. facility following the sale. The bankruptcy declaration caps a difficult period for PFI. The firm experienced weak OTC sales in 2004 and faced good manufacturing practices challenges from FDA. The agency documented a series of GMP violations in January and February 2004 inspections. While the firm addressed specific violations, FDA warned the firm in May that its problems indicated "widespread inadequacies" (1 (Also see "OTC Generics Firm PFI Needs To Address Possible System Failures – FDA" - Pink Sheet, 24 May, 2004.), p. 15). The planned expansion of its OTCs places Leiner closer to nonprescription private label leader Perrigo. The expanded product mix and production capability also could help the firm weather the impact of recent crises that have affected sales of OTC and supplement ingredients. Leiner has seen reduced sales for products such as vitamin E and naproxen following negative trial results and media in the past year. Meanwhile, the firm has been racing branded and private-label competitors to market to replace pseudoephedrine SKUs with phenylephrine in response to state legislation putting the decongestant behind pharmacy counters. |