Meda dismisses fears links to Valeant will hinder M&A plan

Fallout from the scandal engulfing Valeant ($VRX) has hit Meda (STO:MEDA-A), which outlicensed the North American rights to a pair of dermatology drugs to the troubled specialty pharma company in 2011. But while Meda has acknowledged that the royalties it receives from Valeant are set to fall by 50%, management has dismissed the possibility of the decline holding back its M&A strategy.

Meda CEO Jörg-Thomas Dierks

Gothenburg, Sweden-based Meda currently receives a minimum of $40 million (€38 million) a year from Valeant under the terms of the 2011 licensing deal. However, from next year onward there will be no minimum value to the deal, with Meda simply taking a percentage of whatever revenue the products generate for Valeant. Meda is projecting that the shift in terms for the products--less than 20% of which are thought to be distributed through the scandal-blighted Philidor pharmacy--will result in the amount of cash it receives from Valeant being cut in half.

Management has moved to downplay the impact of the decline on its business. The royalties are tipped to account for 1% of total sales next year, down from 2% today, and as such Meda sees no reason to divert from the M&A-driven growth strategy it committed to last year, at which time it was trying to shake off the attentions of Mylan ($MYL). In the 18 months since Meda made the pronouncement on M&A, over which period Mylan has moved on to other targets, the Swedish company has bought Italian specialty pharma player Rottapharm for SEK 21.2 billion ($2.4 billion).

The sizable deal did little to dampen Meda's enthusiasm for M&A. Meda, like Valeant, eschews early-stage research, but has swooped on biotech-sized developers with attractive drugs in the past. Sequoia Capital-backed Acton Pharmaceuticals was bought in 2013 for $135 million in a deal that added a recently approved asthma drug to Meda's portfolio. And with a team of more than 500 people working on late-phase clinical trials and regulatory registration, Meda has the capacity to acquire development-stage drugs and bring them to market.

Despite Meda projecting a business-as-usual message, the fallout from the Valeant scandal has contributed to its share price sliding 25% over the past three months. The release of a statement from Meda detailing its links to Valeant initially caused its stock to slide further still, only for the share price to rally later in the day. 

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