We expect to close $1.8-bn deal with Agila by year end: Mylan

This comes in wake of concerns, speculations that $1.8 bn deal may be at risk following US drug regulator's warning letter to Agila Specialities

American generic drug major Mylan Inc said on Tuesday that so far it expects to close its proposed acquisition of Strides Arcolab’s injectible arm Agila Specialities by end of this year, as was scheduled earlier.

Agila Specialities’ sterile manufacturing facility 2 (SFF) in Bangalore received a warning letter from the US Food and Drug Administration (FDA) on Monday because of violations of good manufacturing norms.

“Based on what we know today, we continue to expect to close the Agila acquisition in Q4 2013 and do not expect that the matter will have a material impact on our financial assumptions with regard to our combined business,” Nina Devlin, Vice President, Global Communications at Mylan, told Business Standard in an e-mail response.

This comes in the wake of concerns and speculations that the $1.8 billion deal may be at risk following US drug regulator’s warning letter to Agila Specialities.

However, putting to rest such speculations, the Pennsylvania-based company said it is aware of the corrective actions that Agila is taking to address the regulator’s observations at the SFF site that formed the basis for the warning letter.

“Based on our discussions with Agila and current understanding of the issues, we are confident that Agila and Mylan will be able to work closely with FDA to fully address the observations in the agency’s letter and resolve this matter,” Devlin said.

The SFF unit of Agila was inspected by American regulatory authorities in June this year, which resulted in issuance of Form FDA 483 with observations.  According to Strides, the company responded to the 483 observations by implementing corrective actions. However, the US FDA issued recently issued a warning letter to the facility.

Remarkably, Strides Arcolab and Mylan entered into an agreement for the deal for Agila Specialities in February this, around four months before the US FDA’s inspection highlighting problems in Agila’s sterile manufacturing facility.

The proposed deal, however, got a Cabinet approval only earlier this month.

Analysts opine that Mylan will now certainly do its due diligence before going ahead with the deal. However, the future of the proposed deal depends a lot on clauses of the agreement and also whether Mylan chooses to opt out of the deal because of the warning letter.

Under the terms of the agreement between Strides and Mylan, the domestic drug maker and its subsidiary will receive an aggregate sum of $1.6 billion in cash on closing of the deal and a potential additional consideration of up to $250 million subject to the satisfaction of certain conditions by Strides.

Following successful closing of the transaction, Strides proposes to utilise proceeds towards, inter alia, retiring debt, providing a pre-tax return of approximately $700 million to $800 million to shareholders, and costs related to the satisfaction of contingent conditions.

Agila is a global speciality injectables business focused on key domains including oncolytics, penems, penicillin, cephalosporins and ophthalmics in India and overseas. Agila operates from nine global manufacturing facilities, including one of the largest sterile capacities in India and amongst the largest lyophilisation capacities in the world.

Shares of Strides Arcolab, which dipped around 7% on Monday to hit a low of Rs 839, closed at Rs 847 on the Bombay Stock Exchange on Tuesday, down 2.5% from their previous close.