A Sensible Acquisition by This Healthcare Company

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As competition gets stronger, companies attempt to consolidate operations. Although this consolidation is an expensive way to penetrate the market, in the pharmaceutical industry, this method brings safer growth. The smaller players especially are aiming to integrate with those who have their products in the second or third phases of clinical trials.

That same strategy has been used by The Medicines Company (NASDAQ: MDCO). After passing the last stage of clinical trials for Fibrocaps, it has announced the acquisition of ProFibrix for $90 million. Fibrocaps, a dry powder topical formulation of fibrinogen and thrombin, is a newly discovered treatment for surgical bleeding.

719 patients were studied during the trial. The trial fulfilled all the requirements of primary and secondary hemostasis efficacy endpoints in spinal surgery, hepatic resection, soft tissue surgery, and vascular surgery. A complimentary dry powder spray has also been developed.

Fibrocaps is a significant advancement in the drug industry. Due to its ease of use and effectiveness, along with the complimentary spray device, it has the potential to constitute a crucial development in surgical hemostasis. Through this integration, the company will be able to expand its operations in the surgical field and strengthen its global management team. It will also allow it to work with U.S. surgery centers and enter the European market.

Revenue is anticipated to increase by $300 million after the acquisition. Last year, sales for The Medicines Company were $559 million, so if approved in primary markets, Fibrocaps will add more than 45% to existing revenue. The cost for the acquisition is expected to be $9 million to $12 million, which will be felt in the third quarter.

The company’s revenue has increased by 25% in the first half of this year. Its adjusted net income, excluding onetime costs, was 64% higher than the previous year. Its net margin and the debt-to-equity ratio are considerably better than the overall industry.

Competitor strategies

In July, Endo Health Solutions (NASDAQ: ENDP) announced the launch of its MiniArc Pro single-incision sling system. The system is used for the treatment of female stress urinary incontinence (SUI). This product will boost revenue as SUI disease is  increasing in the U.S.

Currently, there are more than 13 million women suffering from this disease. The system is an upgrade to two previous systems, which have shown a success rate of 85% to 90% percent across multiple studies. It gives physicians the ability to measure sling tension in a repeatable way to help find the most accurate placement for patients. As many SUI tests are painful and make the patients uncomfortable, this new way of accurate insertion will reduce pain and increase comfort level.

In the first quarter of 2013, Endo Health Solutions' sales increased by 3% while its adjusted per share earnings increased by 25% year-over-year. The company anticipates 2013 revenue to be in the range of $2.80 billion to $2.95 billion, and expected earnings to be in the range of $2.10 to $2.40. In 2012, it endured a per-share loss of $6.40, which means the company is making a significant recovery.

Largest comp

Pfizer (NYSE: PFE) has announced it will internally separate its business into three segments; two relating to innovative business lines and the third including a value business line. All three segments include developed and emerging markets. Each of these segments will operate as a separate global business.

The separation will enable the company to focus on innovative and value businesses. It will improve the ability of each business unit to respond to market dynamics with greater focus. The strategy is surely going to improve the efficiency in the system, eventually improving revenue and enhancing the value of its established brands. The separation will also maximize the use of capital by management, consequently improving returns on assets and equity. It will deliver value to customers and shareholders of Pfizer.

Final thoughts

The Medicines Company enjoys a very sound financial position. Moreover, the acquisition of ProFibrix will add to revenue, making its position even stronger. Perhaps it is time you took a closer look for yourself.

Endo Health Solutions has made a recovery from its previous year losses. Its new launch will further boost its sales and increase profitability. The future for the company is bright.

Despite falling sales, Pfizer managed higher net income by improving its operating and net margins. However, it is expected that due to its new strategy, management of each division will pay more attention to market dynamics and take steps to get ahead of trends. Its current price may offer an attractive entry point.

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