CLIN.L Regulatory News (CLIN)

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU) NO.596/2014.

27 September 2018

Clinigen Group plc

Acquisition of CSM for initial consideration of $150 million

Accretive acquisition significantly strengthens Clinigen's competitive positioningwith specialist packaging, labelling, warehousing and distribution capabilities in Europe & the US

Clinigen Group plc ('Clinigen' or the 'Group', AIM: CLIN), the global pharmaceutical and services company, has agreed to acquire CSM Parent, Inc. ('CSM'), a specialist provider of packaging, labelling, warehousing and distribution services from its locations in Continental Europe and the US to a global client base, for an initial consideration of $150 million (the "Acquisition").

Strategy

Acquisition in line with strategy to expand supply and distribution network thereby supporting all parts of the business, providing value added services to its customer base and the provision of access to medicines from pre-launch and unlicensed stages to licensed on a global basis.

Operational and commercial highlights

· Expands Clinigen's value added services

o Adds specialist packaging, labelling, warehousing and distribution services for clinical and unlicensed products in different regulated markets. Clinigen currently has its own limited facility in the UK and partners elsewhere for these services

o Creates attractive opportunity to cross-sell services to provide the end-to-end solution increasingly required by customers

o Rapidly accelerates position in fast growing Investor Initiated Trials ("IITs") segment of trials / pre-approval market, estimated to be valued at over $1bn

· Further diversifies and expands global client and customer base, adding specialist and niche pharma and biotechnology companies to Clinigen's predominantly mid-market to large pharma, creating significant cross selling opportunities 

· Adds important supply and distribution infrastructure, especially in Continental Europe (Germany and Belgium), which supports current reach across all three businesses - CTS, Unlicensed and Commercial Medicines

· Reinforces flow of business between Clinigen's three divisions, providing new revenue and cost synergy opportunities

Financial highlights

· Initial cash consideration of $150m on a cash free and debt free basis

· Further contingent consideration of up to $90m in cash

o Payable if CSM achieves growth over a predetermined level of EBITDA in year to 31 December 2019

o As CSM outperforms and the deferred payment rises, overall Clinigen earnings accretion also rises

· Financed by new banking facilities (the 'New Facilities') and a separately announced equity placing, targeting gross proceeds of up to £80 million (the 'Placing')

· Pro-forma leverage, assuming an £80m equity raise, expected to be approximately 2.4x net debt / EBITDA. Given strong cash flow generation leverage expected to reduce towards 2.0x by 30 June 2019

· EPS accretive in first full year of ownership before synergies

· ROIC expected to be in excess of 10% in third full year of ownership before synergies

· Cost synergies of at least £1 million expected by the end of first full year with potential for revenue synergies over time

Year end results and acquisition of iQone

· The Group has also today published results for the year to 30 June 2018 which showed adjusted gross profit up 14%, adjusted EPS up 10% to 45.4p (2017: 41.3p) and full year dividend increased 12% to 5.6p (2017: 5.0p) - see separate press release

· The Group has also conditionally acquired iQone, a Swiss based speciality pharmaceutical business, for a total initial consideration of €7.5 million - see separate press release

Shaun Chilton, CEO of Clinigen, said:

"This acquisition is an exciting next step in line with our strategy and realising our vision to become the global trusted leader in access to medicines.

"CSM will expand further our global supply and distribution network in strategically important regions, particularly Continental Europe, and will support all parts of our business. It extends our platform to provide access to medicines from the pre-launch and unlicensed stages through to licensed status on a global basis.

"Equally importantly, CSM's specialist labelling and packaging capabilities will enable us to offer this previously largely outsourced service to customers for clinical trial and unlicensed products across different markets. We expect this will also rapidly accelerate our leading position in a growth segment of the clinical trial/pre-approval market, services to Investigator Initiated Trials, which is estimated to be valued at over $1bn.

"Operationally, this acquisition will significantly strengthen our competitive positioning. This combination will significantly improve Clinigen's capability to support the full life-cycle of a medicine at key points - from clinical trials to unlicensed to licensed - across an increasing number of territories."

-Ends-

Investor and analyst conference call

The planned analyst results meeting is now at 8.30am, not 9.30am. A presentation will be available shortly to analysts and investors on the Clinigen website at: ww.clinigengroup.com. A recording of the meeting will be available online later in the day.

Analyst or investors who wish to dial in please contact Instinctif Partners on +44 (0) 20 7457 2020 or email clinigen@instinctif.com

The information contained in this announcement is inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon publication of this announcement, this inside information is now considered to be in the public domain.

Contact Details

IMPORTANT NOTICES

RBC Europe Limited is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority (the "FCA") and the Prudential Regulation Authority and is acting exclusively for the Company and no one else in connection with the Acquisition and the content of this Announcement. RBC Europe Limited will not regard any other person as their client in relation to the Acquisition, the content of this Announcement and other matters described in this Announcement and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice to any other person in relation to the Acquisition, the content of this Announcement or any other matters referred to in this Announcement.

Numis Securities Limited is authorised and regulated in the United Kingdom by the FCA and is acting exclusively for the Company and no one else in connection with the Acquisition and the content of this Announcement. Numis Securities Limited will not regard any other person as their client in relation to the Acquisition, the content of this Announcement and other matters described in this Announcement and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice to any other person in relation to the Acquisition, the content of this Announcement or any other matters referred to in this Announcement.

This Announcement is for information purposes only and shall not constitute an offer to sell or issue or the solicitation of an offer to buy, subscribe for or otherwise acquire securities in any jurisdiction in which any such offer or solicitation would be unlawful. Any failure to comply with this restriction may constitute a violation of the securities laws of such jurisdictions. This Announcement is not being distributed by, nor has it been approved for the purposes of section 21 of the Financial Services and Markets Act 2000, as amended ("FSMA") by, a person authorised under FSMA.

This Announcement has been issued by and is the sole responsibility of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by RBC Europe Limited, Numis Securities Limited or by any of their respective affiliates or agents as to, or in relation to, the contents of this Announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by either of them, or on their behalf, the Company or any other person in connection with the Company, the Acquisition or for any other written or oral information made available to or publicly available to any interested party or its advisers, and nothing in this Announcement should be read as a promise or representation in this respect, whether or not to the past or the future. Each of RBC Europe Limited, Numis Securities Limited and their respective affiliates and agents disclaims to the fullest extent permitted by law all and any responsibility or liability whatsoever, whether arising in tort, contract or otherwise, which it might otherwise have in respect of this Announcement or any such statement.

Cautionary statements

Certain statements contained in this Announcement constitute "forward-looking statements" with respect to the financial condition, performance, strategic initiatives, objectives, results of operations and business of the Group, CSM and the Enlarged Group.

All statements other than statements of historical facts included in this Announcement are, or may be deemed to be, forward-looking statements. Without limitation, any statements preceded or followed by or that include the words ''targets'', ''plans'', ''believes'', ''expects'', ''aims'', ''intends'', ''anticipates'', ''estimates'', ''projects'', ''will'', ''may'', "would", "could" or "should", or words or terms of similar substance or the negative thereof, are forward-looking statements. Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of the Group's, CSM's or the Enlarged Group's operations and potential synergies resulting from the Acquisition; and (iii) the effects of government regulation on the Group's, CSM's or the Enlarged Group's business.

Such forward-looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results, performance or achievements to differ materially from those projected or implied in any forward-looking statements. The important factors that could cause the Group's, CSM's or the Enlarged Group's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, economic and business cycles, the terms and conditions of the Group's, CSM's or the Enlarged Group's financing arrangements, foreign currency rate fluctuations, competition in the Delph Group's, CSM's or the Enlarged Group's principal markets, acquisitions or disposals of businesses or assets and trends in the Group's, CSM's or the Enlarged Group's principal industries. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof.

The forward-looking statements contained in this Announcement speak only as of the date of this Announcement. The Company, the Directors, RBC Europe Limited and Numis Securities Limited each expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation, the AIM Rules, the DTRs, the rules of the London Stock Exchange or the FCA.

This Announcement contains certain financial measures that are not defined or recognised under IFRS (International Financial Reporting Standards), including EBITDA (being earnings before interest, tax, depreciation, amortisation). Information regarding these measures are sometimes used by investors to evaluate the efficiency of a company's operation and its ability to employ its earnings toward repayment of debt, capital expenditures and working capital requirements. There are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company. These measures, by themselves, do not provide a sufficient basis to compare the Company's performance with that of other companies and should not be considered in isolation or as a substitute for operating profit or any other measure as an indicator of operating performance, or as an alternative to cash generated from operating activities as a measure of liquidity.

No statement in this Announcement is intended as a profit forecast or estimate for any period and no statement in this Announcement should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for the Group, CSM or the Enlarged Group, as appropriate, for the current or future years would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for the Group, CSM or the Enlarged Group, as appropriate.

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this Announcement.

This Announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 ("MAR"). The person responsible for arranging release of this information on behalf of the Company is Amanda Miller. In addition, market soundings (as defined in MAR) were taken in respect of the Placing with the result that certain persons became aware of inside information (as defined in MAR), as permitted by MAR. This inside information is set out in this Announcement and the Results Announcement and Placing Announcement which have been announced separately this morning. Therefore, those persons that received inside information in a market sounding are no longer in possession of such inside information relating to the Company and its securities

Acquisition of CSM

1. Introduction and overview of CSM

Clinigen today announces that it has agreed to acquire the entire issued share capital of CSM for an initial consideration of $150 million in cash (subject to working capital adjustments) on a cash free and debt free basis. Additional contingent consideration of up to a further $90 million may become payable in cash in 2020. The Acquisition has a maximum potential consideration of $240 million. Such contingent consideration is only payable in the event that CSM achieves growth over a predetermined level of EBITDA in the year to 31 December 2019. The contingent consideration has been structured such that as CSM outperforms, and the deferred consideration payment rises, the overall earnings accretion to Clinigen also rises.

CSM is a specialist provider of packaging, labelling, warehousing and distribution services. CSM operates from sites in Continental Europe and the US and caters to a broad range of pharmaceutical and biotechnology companies. Other services include: shipping solutions, cold chain logistics, label design and production, return reconciliation and destruction and clinical supplies consulting.

For the financial year ended 31 December 2017, CSM reported revenue of $51.2 million and adjusted EBITDA1 of $7.6 million. In the 12 month period to 31 August 2018, CSM achieved unaudited revenue of $60.2 million demonstrating the ongoing momentum in the business. The strength of the current pipeline indicates that this momentum will continue into next year. CSM had total assets at 31 December 2017 of $54.2 million.

The Acquisition is in line with Clinigen's strategy to expand its global supply and distribution network in strategically important regions, to support all parts of the business. In the first full year following completion, the Acquisition is expected to be accretive and operationally, it will significantly strengthen Clinigen's competitive positioning.

CSM brings specialist labelling and distribution capabilities which will enable Clinigen to offer this previously outsourced service to customers for clinical and unlicensed products across different markets. This will significantly strengthen Clinigen's position in the rapidly growing IIT sub segment - a significant growth market estimated to be valued at over $1bn.

CSM offers a one stop solution for its pharma clients. After taking receipt of bulk clinical trial products, CSM is able to manage all processes associated with ensuring the clinical trial materials reach the right patient at the right time, from individual dosage packaging and labelling, to cGMP storage and global logistics, to returns and reconciliation at the conclusion of a trial. CSM caters to a broad range of companies, historically focusing on biotechnology and mid-market development stage companies but is showing strong forward momentum in extending its client roster to now including large pharma companies. CSM has global reach with 250 employees deployed across two facilities in Continental EU (Belgium and Germany) and three in the US (East Coast), led by a high quality experienced management team with a track record of growth. CSM has distributed its products and services across 86 countries.

CSM will create further competitive advantage for the Unlicensed Medicines business as Clinigen expects CSM's specialist services will become an increasing part of the service offering in early (Managed) access programs. CSM also brings complementary storage, packaging and distribution capability to the Group for the benefit of the Commercial Medicines business, with facilities in Europe and the US.

CSM's specialist capabilities combined with Clinigen's supply & distribution network provides an opportunity to offer customers the choice of a combined end-to-end offer which is increasingly requested by customers. While both companies will continue to face competition in their respective spheres of operation, the Directors believe that the enlarged group will have a significantly improved capability to support the full life-cycle of a medicine, from clinical trials to unlicensed to licensed, across an increasing number of territories.

Industry Overview

CSM operates in a highly attractive niche within the broader outsourced pharma services industry. As cost pressures have increased on pharma companies in recent years, these organisations have sought to rationalise their cost structures and outsource significant portions of the drug development process. The broader outsourced pharma services industry represents c.$30 billion in annual spend and is expected to grow at 6-7% per annum through 2020.

As clinical trials have grown more complex and global in nature, the supplies management niche has increased in importance and grown rapidly as a result. The international scope of trials has created a more diffuse and challenging logistics network to manage and the increased focus on rare disease and biologics makes reaching the right patient at the right time ever more complex.

Against this backdrop the industry is fragmented and composed of a few very large scale players and a number of smaller, regional service providers.

2. Background to and reasons for the Acquisition

Clinigen believes this accretive acquisition fulfils a number of strategic, commercial and operational goals and is in line with the Group's stated strategy to become the global trusted leader in access to medicines.

Expands Clinigen's value-added capabilities:

CSM provides dedicated packaging, labelling, storage and distribution of clinical supplies globally, with an innovative "on-demand" model providing a total end-to-end solution for the client. Adding these capabilities will allow Clinigen to respond to increased levels of outsourcing from pharmaceutical companies and the desire for a combined service across IITs and early (managed) access programmes.

Diversifies global client and customer base:

CSM brings a complementary client base of over 120 specialty and mid-sized pharma and biotech companies. Clinigen will have the opportunity to cross sell its more extensive offering to these clients, capturing a greater share of pharma companies' spend. In turn, it can offer its current customers the specialist capabilities of CSM to add further value and strengthen those relationships.

The Acquisition also significantly improves Clinigen's access to IITs, a growing part of the market. IITs are an increasingly important part of developing and commercialising medicines. CSM will accelerate Clinigen's strong position in the IIT space which the Directors expect to be a significant growth market estimated to be valued at over $1bn.

Adds important infrastructure, especially in Continental Europe:

CSM brings high quality infrastructure in the US and Continental Europe, with operations in Belgium and Germany. The addition of these supply and distribution centres will reduce external spend and improve Clinigen's speed and efficiency.

Continental Europe is currently a gap in Clinigen's supply and distribution capability and the Directors believe CSM is one of the leading businesses with significant packaging, labelling, storage and distribution capabilities in the region.

Reinforces links between the three Clinigen businesses:

CSM provides benefits across Clinigen's key business units. CSM accelerates Clinigen's penetration of the IITs market segment, an attractive and growing market.

In Unlicensed Medicines, adding CSM's capabilities to Clinigen's early (Managed) access offering in Europe creates a more holistic service and a strong competitive advantage.

CSM's infrastructure will allow Clinigen to pursue opportunities in Commercial Medicines in Continental Europe.

There is the potential to roll out CSM's capabilities through Clinigen's existing physical locations in the Africa and Asia Pacific region creating further opportunities for the Group.

The Directors believe the combined strength of the parties will give the advantage of allowing Clinigen to support the full journey of a medicine - from prelaunch and unlicensed stages, through to licensed, across an increasing number of territories.

Strong financial metrics:

· Enhances the growth profile of the enlarged group

· Accretive in the first full year of ownership to June 2020

· ROIC expected to be in excess of 10% in third full year of ownership before synergies

· Cost synergies of at least £1 million which the Directors expect to achieve by the end of the first full year

· The earn out has been structured such that as CSM outperforms, and the deferred payment thus rises, the overall accretion to Clinigen also rises

3. Principal terms of the Acquisition

Under the terms of the sale and purchase agreement (the "Sale and Purchase Agreement"), Clinigen has agreed to acquire CSM for an initial consideration of $150.0 million (subject to working capital adjustments) on a cash free and debt free basis. Additional contingent consideration of up to $90m in cash may become payable in the event that CSM achieves growth over a predetermined level of EBITDA in the year to 31 December 2019. The Acquisition is unconditional and is expected to complete shortly after the net proceeds of the Placing have been received by Clinigen.

4. Financial impact of the Acquisition

Clinigen is funding the acquisition and associated expenses through a refinancing of the Group's existing debt facilities and the Placing, which has been separately announced this morning, and is targeting gross proceeds of approximately £80 million.

Clinigen's debt facility has been increased from £220m to up to £300m and extended to October 2023. The new financing includes an unsecured £150m term loan with a single repayment in 2023 and an unsecured revolving credit facility of up to £150m. The ongoing leverage covenant for net debt/adjusted EBITDA will be 3.75x reducing to 3.00x from 30 September 2019. Pro-forma leverage, assuming an £80m equity raise, is expected to be approximately 2.4x net debt/ EBITDA. Given the strong cash flow generation of the business, leverage is expected to reduce towards 2.0x by 30 June 2019.

1 Adjusted EBITDA is stated after adjusting for Malvern facility start-up costs, Belgian integration costs and remuneration costs for legacy owners of acquired companies.