13th Mar 2006 07:03
Sinclair Pharma PLC13 March 2006 Sinclair Pharma plc 13 March 2006 Not for release, publication or distribution, in whole or in part, in, into orfrom the United States, Canada, Australia and Japan Proposed acquisition of Groupe CS Dermatologie SAS Proposed Vendor Placing to raise £35 million Sinclair Pharma plc ("Sinclair" or the "Company") today announced the proposedacquisition of Groupe CS Dermatologie SAS ("CS Dermatologie"), a privately ownedcompany based in Paris, France, focused on the manufacture and distribution ofprescription drugs, OTC products and derma-cosmetic products in the dermatologyfield, with its own sales force in France, Spain and Portugal. The Directors believe the Acquisition will advance the Group's strategic aim tohave its own sales and marketing activities in the five major European marketsand will also significantly expand the Group's portfolio of on-market products. The consideration payable is €53.1 million (£36.8 million), comprising aninitial payment of €51 million and a further payment of €2.1 million, and thereis a performance related deferred consideration payable to the President of CSDermatologie by Sinclair in annual instalments over a period of four years,based upon the annual incremental increases in revenue achieved by the CSDermatologie Group. The initial consideration of €51 million (£35.3 million) is being financedthrough a vendor placing of 28,000,000 new ordinary shares at a price of 125pence per share, fully underwritten by Piper Jaffray and Bridgewell to raise £35million for the Vendors, and the balance of £0.3 million, together with thefurther payment of €2.1 million (£1.5 million), will be satisfied from theCompany's cash resources. The new ordinary shares in the Vendor Placing havebeen conditionally placed with new and existing institutional investors in theUK, continental Europe and the US, and with certain directors of the Company whohave agreed to take up in aggregate 1,520,000 of the new ordinary shares. Key points and benefits of the acquisition: • Profitable business with a strong revenue base. Revenue of €17.7 million for the year ended 31 December 2005 • A broad and complementary range of dermatology products significantly strengthens Sinclair's existing product portfolio • Provides direct sales force in three European markets: France, Spain and Portugal, allowing Sinclair to advance rapidly its stated strategy of expanding its direct sales and distribution activities • Allows introduction of the current Sinclair dermatology portfolio into France, Spain and Portugal • Allows CS Dermatologie's products to be sold through Sinclair's existing direct sales force in Italy and its extensive international distributor network • Allows Sinclair to benefit from the higher revenues and gross margins associated with selling products direct rather than through its traditional distributor model • Experienced management team will remain in place to run the business Dr Michael Flynn, Chief Executive Officer of Sinclair, commented: "Thisacquisition transforms Sinclair's dermatology business by providing the Companywith a substantially enhanced product portfolio and route to market in threeEuropean countries. With clear cross-selling opportunities, and enhanced marginsfrom selling through our own sales force, we believe that this acquisitionsubstantially advances our strategy of becoming a leading European specialtypharmaceutical company." Enquiries: Sinclair Pharma plc +44 (0)1483 426 644 Michael Flynn, Chief Executive Officer Jerry Randall, Chief Financial Officer Piper Jaffray Ltd. +44 (0) 20 7743 8700 David Rasouly Jamie Adams Bridgewell Securities Ltd. +44 (0)20 7003 3000 Shaun Dobson Xavier de Mol Financial Dynamics +44 (0)20 7831 3113 Ben Atwell Vendor Placing Statistics Placing Price 125pNumber of Ordinary Shares in issue at the date of this announcement 65,276,219Number of Vendor Placing Shares being conditionally placed 28,000,000Number of Ordinary Shares in issue following completion of the Vendor Placing 93,276,219Vendor Placing Shares as a percentage of the enlarged issued ordinary share capital 30.0%Market capitalisation of the Company immediately following completion of the Vendor £116.6 millionPlacing (at the Placing Price) Expected Timetable of Events 2006Latest time and date for receipt of Forms of Proxy 10.00 a.m. on 27 MarchExtraordinary General Meeting 10.00 a.m. on 29 MarchCompletion of the Acquisition and Admission of the Vendor Placing Shares to 30 MarchAIMCREST accounts credited with Vendor Placing Shares in uncertificated form 30 MarchDispatch of definitive share certificates in respect of Vendor Placing by 13 AprilShares to be issued in certificated form Piper Jaffray Ltd. is nominated adviser and joint broker to the Company for thepurpose of the AIM Rules. Piper Jaffray Ltd., which is authorised and regulatedin the United Kingdom by the Financial Services Authority and is a member of theLondon Stock Exchange, is acting exclusively for the Company in relation to theVendor Placing and the Acquisition. Piper Jaffray Ltd. is not acting for anyother person in connection with the matters referred to in this announcement andwill not be responsible to anyone other than the Company for providing theprotections afforded to clients of Piper Jaffray Ltd. or for giving advice inrelation to the matters referred to in this announcement. Bridgewell Securities Ltd. is joint broker to the Company for the purpose of theAIM Rules. Bridgewell Securities Ltd., which is authorised and regulated in theUnited Kingdom by the Financial Services Authority and is a member of the LondonStock Exchange, is acting exclusively for the Company in relation to the VendorPlacing. Bridgewell Securities Ltd. is not acting for any other person inconnection with the matters referred to in this announcement and will not beresponsible to anyone other than the Company for providing the protectionsafforded to clients of Bridgewell Securities Ltd. or for giving advice inrelation to the matters referred to in this announcement. This press announcement has been issued by the Company and is the soleresponsibility of the Company. This announcement has not been approved byeither Piper Jaffray Ltd. or Bridgewell Securities Ltd. for the purposes ofsection 21 of the Financial Services and Markets Act 2000. This announcement does not constitute or form part of any offer to sell or issueor the solicitation of any offers to purchase or subscribe for new ordinaryshares in any jurisdiction. This announcement is not an offer of securities forsale in the United States. The new ordinary shares to be issued have not beenand will not be registered under the United States Securities Act of 1933 (asamended) (the "Securities Act") or the securities laws of any state or otherjurisdiction of the United States and new Ordinary Shares may not be offered orsold, direct or indirect through CREST or otherwise within the United States,absent registration under the Securities Act or an exemption from registration.No public offer of new ordinary shares is being registered in the United States. This announcement does not constitute or form part of any offer or invitation tosell or issue, or any solicitation of any offer to purchase or subscribe for,any securities other than the securities to which it relates or any offer orinvitation to sell or issue, or any solicitation of any offer to purchase orsubscribe for, such securities by any person in any circumstances, and in anyjurisdiction, in which such offer or solicitation is unlawful. Accordingly,copies of this announcement are not being and must not be mailed or otherwisedistributed or sent in or into or from the United States, Canada, Australia orJapan and any person receiving this announcement (including custodians, nomineesand trustees) must not distribute or send it in or into or from the UnitedStates, Canada, Australia or Japan. Neither the delivery of this announcement nor any subscription or sale madeunder it shall, under any circumstances, create any implication that there hasbeen no change in the affairs of the Group since the date of this announcementor that the information in it is correct as of any subsequent time. This announcement may contain forward-looking statements that reflect theGroup's current expectations regarding future events, including the clinicaldevelopment and regulatory clearance of the Group's products, the Group'sability to find partners for the development and commercialisation of itsproducts, on the Group's liquidity and results of operations, as well as theGroup's future capital raising activities. Forward-looking statements involverisks and uncertainties. Actual events could differ materially from thoseprojected herein and depend on a number of factors, including the success of theGroup's strategies, the applicability of the discoveries made therein, thesuccessful and timely completion of clinical studies, the uncertainties relatedto the regulatory process, the successful integration of completed mergers andacquisitions and achievement of expected synergies from such transactions, theability of the Group to identify and consummate suitable strategic and businesscombination transactions. Sinclair Pharma plc 13 March 2006 Not for release, publication or distribution, in whole or in part, in, into orfrom the United States, Canada, Australia and Japan 1. Introduction Sinclair Pharma plc today announced that it has entered into a conditionalagreement to acquire CS Dermatologie, a privately owned company based in Paris,France, focused on the manufacture and distribution of prescription drugs, OTCproducts and derma-cosmetic products in the dermatology field. The initialconsideration is €51 million (£35.3 million), payable on completion. A further€2.1 million (£1.5 million) is payable, to EF only, 20 business days aftercompletion. Further performance related deferred consideration of up to amaximum of €25 million (£17.3 million) is payable by Sinclair in annualinstalments over a period of four years based upon the annual incrementalincreases in revenue achieved by the CS Dermatologie Group. The Directorsconsider the Acquisition will further the Group's strategic aim to have its ownsales and marketing activities in the five major European markets and will alsoexpand the Group's portfolio of on-market products. The initial consideration of €51 million (£35.3 million) is to be satisfiedthrough the issue of 28,000,000 Vendor Placing Shares which have beenconditionally placed by Piper Jaffray and Bridgewell at the Placing Price torealise cash proceeds of £35 million for the Vendors, and the balance of £0.3million, together with the further payment of €2.1 million (£1.5 million) willbe satisfied from the Company's cash resources. In order for the Acquisition and the Vendor Placing to be effected it isnecessary to seek Shareholders' approval at the EGM to increase the authorisedshare capital of the Company and to authorise the Directors to allot the VendorPlacing Shares pursuant to the Acquisition and the Vendor Placing. TheAcquisition and the Vendor Placing are conditional therefore, amongst otherthings, upon the approval of Shareholders. After consultation with the LondonStock Exchange the acquisition of CS Dermatologie is not being treated as a "Reverse take-over" as defined by the AIM Rules. 2. Information on CS Dermatologie Background CS Dermatologie is a privately-owned French pharmaceutical company, based inParis, France focused on the manufacture and distribution of topical treatmentsin the field of dermatology. It has a complementary range of branded productscovering the prescription drug, OTC product and derma-cosmetic product markets.CS Dermatologie markets its products using its own sales force in its mainmarket, France, as well as in Portugal and Spain; and sells to other countriesin north Africa, the French territories and Asia through a range ofdistributors. CS Dermatologie was originally established in 1986 as a joint venture betweenDidier Rase and Sanofi and incorporated the latter's prescription dermatologybusiness in 1991. Mr Rase, who owns EF, one of the Vendors, and is President ofCS Dermatologie, was the manager of the business whilst it was partnered withSanofi and has remained the key driver of the business since it becameindependent in 1993. Since then CS Dermatologie has grown by the acquisition ofwell known branded drugs and innovative products and has expanded to cover bothOTC and derma-cosmetic products. In 1994, CS Dermatologie acquired a 50 percent. interest in a Portuguese dermatology company based in Lisbon, and in 2005acquired a 51 per cent. interest in a small Spanish company based in Madridproviding it with small sales forces in each of these countries. Products and markets The CS Dermatologie Group has a portfolio of three complementary categories ofbranded dermatology products which cover a range of therapeutic treatments asfollows: • Prescription products - treatments for fungal infections, acne and eczema • OTC products - treatments for nappy rash, skin bacterial infections, superficial burns and warts • Derma-cosmetic products - treatments for mild ailments such as mild acne and dry skin, and beauty treatments such as anti-ageing creams and skin lotions CS Dermatologie's key products are summarised in the table below: Brand Active Ingredient Indication 2005 sales in France (• millions) Prescription ProductsFAZOL Isoconazole Anti-fungal 2.7VIBRAMYCINE Doxycycline Acute acne 1.6TRIDENOSIT* Desonide Eczema, dermatitis 1.5EFFEDERM Tretinoin Acne 0.4PANNOGEL Benzoyl peroxide Acne 0.3OTC ProductsJONCTUM Oxaceprol Superficial burns 1.7OXYPLASTINE Zinc oxide Nappy rash 0.8EPHYDROL** Various Perspiration 0.6Derma-CosmeticsFADIAMONE Centella Asiatica, soya Anti-ageing cream 1.0 extractEFFADIANE Allantoin Dry skin 1.0PAPULEX Bacterial anti-adhesion Acne 1.1 factorMELA'AURA Aloe vera Dry skin 0.4 * Fastest growing prescription product for CS Dermatologie. ** Fastest growing OTC product for CS Dermatologie. Sales are reasonably spread across each of these three categories withprescription drugs accounting for 46 per cent., OTC products 27 per cent. andderma-cosmetic products 27 per cent. of the CS Dermatologie Group's sales of€17.7 million for the year ended 31 December 2005. France is by far the largest market for the CS Dermatologie Group's products,accounting for 80.8 per cent. of sales in the year ended 31 December 2005, whilePortugal accounted for €0.9 million or 5.1 per cent. in the same period, Spainaccounted for €0.1 million (for the five month period since acquisition) andother export markets, including north Africa, the French territories and Asiaaccounted for €2.5 million or 14.1 per cent. of the sales for the year ended 31December 2005. Overall sales in 2005 fell by 3.7 per cent., principally as a result ofdeclining prescription drug sales, in particular due to the advent of genericcompetition for Vibramycine, a treatment for acute acne. This was compounded bythe introduction of a 'gate-keeper' system for the prescription of dermatologytherapies in France whereby patients are now compelled to visit a generalpractitioner prior to a visit to the dermatologist. This temporarily reduceddermatology prescriptions in the second half of 2005. In response to the French government's policy of reducing expenditure onprescriptions for minor dermatological ailments, CS Dermatologie's strategy hasbeen to move towards a higher mix of derma-cosmetic products for which patientsbear the full cost themselves. This has the added strategic advantage thatderma-cosmetic products tend to have a higher margin than prescription drugs andare part of a growing market. CS Dermatologie is planning to introduce line extensions for a number of itsderma-cosmetic products in 2006. Sales and Marketing In France CS Dermatologie employs 18 sales representatives, managed by two areasales managers and a national sales manager, who market CS Dermatologie'sprescription drugs and OTC products to specialist dermatologists and selectedgeneral practitioners. CS Dermatologie's derma-cosmetic products are marketedthrough an agreement with Edrapharm, a leading French contract salesorganisation, dedicated to the pharmacy marketplace. Under this agreement, CSDermatologie contracts for 24 sales representatives on a non-exclusive basis and3 area sales managers, who target high sales potential French pharmacies. In Portugal there are 4 sales representatives based in Porto and Lisbon coveringthe Portuguese market, while in Spain there are 4 sales representatives, whocall on dermatologists and high prescribing general practitioners. In all other overseas markets CS Dermatologie uses local distributors to marketits products. Manufacturing CS Dermatologie manufactures most of its products at its own factory in Clery,Paris in accordance with GMP standards. This is supplemented by outsourcing tothird party contract manufacturers for Vibramycine and Jonctum as part of thein-licensing agreements for these products. To date Sinclair has chosen not to manufacture its products in-house andfollowing the Acquisition the Directors will consider whether it is appropriatefor CS Dermatologie to maintain in-house manufacturing activities. Management Brief biographies of the CS Dermatologie's key management team are set outbelow. Didier Rase (President, 57) is responsible for the overall management andstrategy of CS Dermatologie and is closely involved with the identification andintroduction of new products to the business. Mr Rase has been the key driverbehind the business since he founded the two dermatology companies Cofraco andCare System as a joint venture with Sanofi in the 1980's. These businessescombined to form CS Dermatologie in 1993. Mr Rase, who currently owns 39.9 percent. of CS Dermatologie through EF, has committed to stay with the businessfollowing completion of the Acquisition during which time he will beincentivised to grow the business through a performance related incentive schemefor which EF is the sole beneficiary. Michel Bedouel (Factory Manager, 57), a pharmacist by training, has beenresponsible for the manufacturing operations at CS Dermatologie since 1996.Prior to that he held senior positions in production, site management andquality assurance at Procter and Gamble, France for more than 20 years achievingthe position of Quality Assurance Director in 1994. Ivan Ferey (Marketing Director, 42) entered the pharmaceutical industry as amedical representative with Pharmacia in 1989 and joined CS Dermatologie in 1993as regional director, progressing to the position of National Sales Manager in1998 and was promoted to his current position of Marketing Director in 2001. Sebastien Baudinot (Export Director, 33) holds a Masters in Management fromESSEC in Paris and joined CS Dermatologie in 2000 from Bioglan UK where he hadbeen responsible for distributor recruitment and training and sales developmentfor Asia and East Africa. He is currently responsible for the sales developmentof CS Dermatologie's overseas markets and the management of the two subsidiarycompanies in Portugal and Spain. Franck Pinon (National Sales Manager, 46) joined CS Dermatologie from Bayer in2003. He has over ten years experience in sales management functions in thepharmaceutical industry with Astra Zeneca, Sanofi and Laboratoire Bouchara, andholds an MBA from ESSEC in Paris. Financial Information In the year ended 31 December 2005, the CS Dermatologie Group had revenues of€17.7 million and an operating profit of €2.3 million. As at 31 December 2005,the CS Dermatologie Group had net assets of • 31.8 million after excluding bankborrowings and shareholders loans and the cash which will be eliminatedimmediately prior to completion of the Acquisition. 3. Reasons for the Acquisition The Directors believe that CS Dermatologie represents a transforming acquisitionfor Sinclair for the following reasons: • CS Dermatologie is focused on dermatology products and its complementary range of products will strengthen Sinclair's existing product portfolio in its key area of therapeutic focus; • the Acquisition is expected to allow Sinclair to advance rapidly its stated strategy of expanding its sales and distribution activities into the five major European markets. Following the acquisition of Euroderm in Italy in January 2005, the Acquisition will allow Sinclair to expand its direct sales and marketing presence beyond Italy and into France as well as Spain and Portugal; • the Acquisition will open the way for the introduction of the Group's existing dermatology portfolio into France, Spain and Portugal. In the longer term this is expected to enable Sinclair to benefit from the higher revenues and gross margins associated with selling products direct rather than through its traditional distributor model; • the integration of some of CS Dermatologie's products into Sinclair's existing sales and marketing infrastructure will create opportunities for revenue growth, through Sinclair's own sales force in Italy, and through its international distributor network; • CS Dermatologie has an experienced management team which will remain in place to run the business allowing Sinclair's existing management to focus on running the Enlarged Group as a whole; and • CS Dermatologie is a profitable business with a strong revenue base which will provide critical mass to Sinclair's current commercial activities. 4. Details of the Vendor Placing The Company has entered into the Vendor Placing Agreement with Piper Jaffray andBridgewell, pursuant to which Piper Jaffray and Bridgewell have agreed (asagents of the Company) to procure placees for the Vendor Placing Shares at thePlacing Price. The Placing Price of 125p per Vendor Placing Share represents adiscount of 2.0 per cent. to the closing mid-market price of 127.5p per OrdinaryShare on 10 March 2006, being the latest practicable date prior to the date ofthis announcement. The Vendor Placing, which has been fully underwritten by Piper Jaffray andBridgewell, is conditional, inter alia, upon: • the approval of the Resolutions at the EGM; • the Vendor Placing Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms; and • Admission. The Vendor Placing Shares will be issued credited as fully paid by virtue ofcompletion of the Acquisition Agreement and will be identical to and rank paripassu in all respects with the existing Ordinary Shares, including the right toreceive all future distributions, declared, paid or made in respect of theOrdinary Shares from the date of Admission. The Vendor Placing Shares representapproximately 30.0 per cent. of the enlarged issued ordinary share capital ofthe Company following the Vendor Placing. In order to broaden the institutional shareholder base of the Company and tominimise transactional costs, the Vendor Placing Shares are only being offeredto a number of existing and new institutional shareholders. The Vendor PlacingShares are not being made available to the public. Application will be made to the London Stock Exchange for the Vendor PlacingShares to be admitted to trading on AIM. It is expected that Admission willbecome effective and that dealings in the Vendor Placing Shares will commence on30 March 2006. 5. Extraordinary General Meeting An EGM will be held at the offices of Simmons & Simmons, One Ropemaker Street,London EC2Y 9SS at 10.00 a.m. on 29 March 2006. The Resolutions to be proposedat the EGM are to approve an increase the nominal capital of the Company to£1,250,000 by the creation of 55,000,000 new Ordinary Shares; and to authorisethe Directors to allot relevant securities up to a maximum aggregate number of59,092,000 Ordinary Shares, representing up to an aggregate nominal amount of£590,920. Enquiries: Sinclair Pharma plc +44 (0)1483 426 644 Michael Flynn, Chief Executive Officer Jerry Randall, Chief Financial Officer Piper Jaffray Ltd. +44 (0) 20 7743 8700 David Rasouly Jamie Adams Bridgewell Securities Ltd. +44 (0)20 7003 3000 Shaun Dobson Xavier de Mol Financial Dynamics +44 (0)20 7831 3113 Ben Atwell Definitions The following definitions apply throughout this announcement unless the contextrequires otherwise: "Acquisition" the proposed acquisition by the Company of CS Dermatologie pursuant to the Acquisition Agreement "Acquisition Agreement" the conditional agreement dated 13 March 2006 between the Company and the Vendors relating to the Acquisition of CS Dermatologie "Admission" admission of the Vendor Placing Shares to trading on AIM becoming effective in accordance with the AIM Rules "AIM" AIM, a market that is operated by the London Stock Exchange "AIM Rules" the rules published by the London Stock Exchange governing admission to and operation of AIM (as amended from time to time) "Bridgewell" Bridgewell Securities Ltd, the Company's joint broker "Company" or "Sinclair" Sinclair Pharma plc "CS Dermatologie" Groupe CS Dermatologie SAS "CS Dermatologie Group" CS Dermatologie and its subsidiaries and subsidiary undertakings from time to time, or any one of them as the context may require "Enlarged Group" the Group as enlarged by the Acquisition "EF" Europe Finance SAS, being one of the Vendors and a company controlled by Didier Rase, President of CS Dermatologie "EGM" or "Extraordinary General the extraordinary general meeting of the Company to be held at 10.00 a.m.Meeting" on 29 March 2006 (and any adjournment thereof) "Euros" or "•" Euros, the lawful currency of the European Union "Form of Proxy" the form of proxy for use by Shareholders at the EGM "Group" the Company and its subsidiaries and subsidiary undertakings from time to time, or any one of them as the context may require "London Stock Exchange" London Stock Exchange plc "Ordinary Shares" the ordinary shares of 1p each in the capital of the Company "OTC products" over-the-counter products, sold in pharmacies without the need for a prescription "Piper Jaffray" Piper Jaffray Ltd., the Company's nominated adviser and joint broker "Pounds Sterling", "GBP" or "£" Pounds Sterling, the lawful currency of the United Kingdom "Placing Price" 125p, being the price at which each Vendor Placing Share is to be issued under the Vendor Placing "Portugal" the territories forming the Republic of Portugal "Prescription drugs" pharmaceutical drugs available only on the prescription of a registered medical practitioner and available only from pharmacies "Resolutions" the resolutions to be proposed at the EGM "Shareholders" holders of Ordinary Shares "Spain" the territories forming the Kingdom of Spain "Vendor Placing" the proposed placing of the Vendor Placing Shares at the Placing Price on the terms and conditions of the Vendor Placing Agreement "Vendor Placing Agreement" the conditional agreement dated 13 March 2006 between Piper Jaffray, Bridgewell and the Company relating to the Vendor Placing "Vendor Placing Shares" 28,000,000 new Ordinary Shares to be allotted pursuant to the Vendor Placing "Vendors" EF, Atria Private Equity Fund, I Ferey, M Bedouel, F Pinon and S Baudinot Unless otherwise stated, the Sterling/Euro exchange rate applicable to amountsstated in this announcement is £1: Euro 1.4443 being the spot rate of exchangefor the conversion of Pounds Sterling to Euros which will be used to convert theplacing proceeds from Pounds Sterling to Euros in order to effect payment to theVendors due on completion of the Acquisition in accordance with the AcquisitionAgreement. 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