Hospira-Javelin Merger in Trouble - Analyst Blog

The proposed deal between Hospira (HSP) and Javelin Pharmaceuticals (JAV) seems to be in trouble. After extending the tender offer till June 2, 2010, Hospira recently extended the offer till June 16, 2010.
In May 2010, Javelin’s licensee of commercial rights to Dyloject (Javelin’s lead product) in the EU, Therabel Pharma, decided to withdraw all batches of the drug from the UK market under a Drug Alert Class 2 Medicines Recall. The recalls were made after Therabel noticed the presence of a white particulate matter in some vials of Dyloject.

Subsequently, Hospira evaluated the impact of the recall on Javelin’s business. Following the evaluation of the situation, Hospira believes that all the conditions of the merger agreement have not been met and hence the extension. As per the current status, about 78.47% of the outstanding shares of Javelin have been tendered to Hospira.

In another development, Javelin filed a lawsuit against Hospira so that it is forced to complete the merger. According to Javelin, Hospira has been unable to specify the conditions that it claims Javelin has failed to satisfy. Hospira has also failed to accept and pay for the shares tendered (till May 18, 2010) and breached the terms of a loan agreement under which it was to provide a $2 million loan on June 1, 2010.

Earlier, Hospira announced its intention to acquire Javelin for $2.20 per share or approximately $145 million in April 2010. If the deal with Hospira does not go through, it will be a major setback for Javelin.
In December 2009, Myriad Pharmaceuticals (MYRX) had decided to acquire Javelin in a stock-swap deal. However, Javelin decided to terminate this agreement in April 2010. The termination resulted in Javelin paying $4.4 million to Myriad in the form of a termination fee and other expenses incurred by Myriad related to the merger.

To meet these expenses and repay its outstanding debt burden, Javelin agreed to take a loan from Hospira under which the former may borrow funds up to $4.5 million prior to the closing of the merger.

The acquisition of Javelin will provide Hospira with access to Dyloject, a post-operative pain management drug. Although the drug is marketed in the UK and Scotland, it is yet to receive approval from the US Food and Drug Administration (FDA). A final decision is expected by October 3, 2010.

Hospira will gain global rights to Dyloject except in Europe, where rights are licensed to a third party. The company plans to market the product in the US, Canada, Latin America and the Asia-Pacific region, where it also markets Precedex, Hospira’s proprietary sedation agent. Since both Precedex and Dyloject are marketed to anesthesiologists, Hospira will be able to leverage its Precedex sales force to promote Dyloject.

We believe Dyloject, on successful commercialization, will be a good addition to Hospira’s product portfolio and help boost revenues.