Hikma Pharmaceuticals is buying Boehringer Ingelheim's U.S. generic drugs business for about $2.65 billion in cash and stock, the latest in a string of deals in a sector where size can lend a competitive edge.
The Jordanian company, which makes and markets branded and non-branded generic and injectable drugs, said the Boehringer purchase would make it the sixth biggest provider of generic drugs in the United States.
The deal was announced a day after Israel's Teva Pharmaceutical Industries agreed to pay $40.5 billion for Allergan's generic drug business, consolidating Teva's rank as the world's No. 1 generics maker.
The generic drugs sector is highly competitive so economies of scale are important for pharmaceutical companies.
Hikma has been looking to expand in the United States, which accounts for about half of sales. It strengthened its injectable drugs business there when it bought manufacturing assets from Germany's Boehringer last year.
However, Hikma has been particularly keen to boost its share of the non-injected medicine market in the United States.
"We won't be the size of Teva and other big companies, but we will be bigger than many other companies that were ahead of us over the last five years," Hikma Chief Executive Said Darwazah told Reuters.
Shares in the London-listed company rose as much as 8 percent to 2,253 pence on Tuesday, making them one of the top gainers on the FTSE-100 index. The stock has lost about 13 percent since its inclusion in the index in March.
Besides Teva, other generic drug sector deals this year include Pfizer Inc's $15 billion deal for Hospira Inc in February, Endo International's $8 billion purchase of Par Pharmaceutical in May and Mylan NV's proposed offer for Perrigo Company.
India's Lupin also agreed to buy U.S. peer GAVIS Pharmaceuticals for $880 million this month.
The generics division is Hikma's smallest, bringing in $215 million in 2014, or 15 percent of sales. However, Hikma is now targeting sales of $725 million to $775 million from the Boehringer businesses in 2017.
Hikma said it will pay $1.18 billion in cash and issue 40 million Hikma shares, or about 16.71 percent of its issued share capital, for Boehringer's Roxane Laboratories Inc and Boehringer Ingelheim Roxane Inc when the deal closes.
"The price looks reasonable to us given recent deal valuations in the sector and assuming Hikma can deliver on these objectives," Jefferies analysts wrote in a note to clients.
Hikma said the valuation was based on an agreed issue price for the new Hikma shares of 23.50 pounds and an exchange rate of 1.56 dollars to the pound. It also agreed to make milestone payments of up to $125 million as part of the deal, which is expected to close in the fourth quarter this year.
Hikma said it expected the acquisition to increase adjusted earnings per share in 2016 and to add "very strongly" to adjusted EPS thereafter.
Darwazah ruled out any more big acquisitions, saying the company would focus instead on adding products and technology.
"We are not in the race to be number three at the moment," Darwazah said.