Alliance Pharma PLC (AIM: APH) said its unit Alliance Pharmaceuticals Limited ("APL"), has conditionally agreed to buy the worldwide rights to the Buccastem and Timodine brands from various subsidiaries of Reckitt Benckiser Group PLC (LSE: RB) for £7.5 million, of which £3.7 million will be paid via a vendor share placing.
The acquisition is expected to be significantly earnings enhancing in the first full year of ownership.
Buccastem is sold mainly on prescription as a treatment for nausea and vomiting, and for symptomatic treatment of other conditions such as vertigo. It is also available over the counter as Buccastem M for use by migraine sufferers. Production of Buccastem will remain with the existing contract manufacturer.
Timodine is a broad spectrum anti-fungal and anti-bacterial skin cream used for treating inflamed and infected skin conditions in which the Candida albicans fungus is a factor. Uses of Timodine include treatment of severe nappy rash, eczema and other dermatoses. In the UK, Timodine is available only on prescription. Reckitt Benckiser will continue to manufacture Timodine for Alliance for at least two years while production is moved to a third party contract manufacturer.
It is anticipated that subsequent to the acquisition, some outstanding variations to the Timodine product licence in respect of the formulation will need to be submitted to the regulatory authority.
This may or may not result in the interruption of the distribution of Timodine whilst these variations are processed. If there were such an interruption, Reckitt Benckiser Healthcare (UK) Ltd has agreed to compensate Alliance for up to £250,000 of gross margin lost as a result of such interruption.
In the year ended December 32 2008, total sales of the two brands were £2.6 million, 1.6 million for Buccastem and £1 million for Timodine, with the majority generated in the UK.
Alliance will pay 3.8 in cash and the remainder in shares. Together with a placing to raise £200,000 in cash to cover costs and expenses in relation to the vendor placing and the acquisition, the company is issuing a total of 31.2 million new shares priced at 12.5 pence each.
To fund the cash element of the Acquisition, Lloyds Banking Group is providing an additional £2 million term loan and increasing the existing £3 million working capital facility to £5 million.
Alliance reiterated comments from its July 2009 trading update that it expects pretax profit for the six months ended June 30 2009 to be not less than £2.7 million. Operating profit for the same period was approximately 4.1 million, up 46 percent on the same period in 2008, and the net bank debt at June 30 2009 was £23.1 million, a reduction of 2.1 million since the end of 2008. The company is proposing to declare a maiden interim dividend for the first half.
Commenting on the acquisition, CEO John Dawson said: "We are delighted to bring a further two well-established and profitable prescription brands into our portfolio, thereby extending our successful business model. Timodine will fit well with our existing Dermatology brands, an area that we are actively promoting, and both brands bring the potential to extend our international business."