The north-east German drug manufacturer Cheplapharm wants to go public. The family company from Greifswald intends to generate gross 750 million euros in the coming weeks with the placement of new shares, as Cheplapharm announced on Monday. In addition, the owners, the siblings Sebastian Braun and Bianca Juha, want to sell shares. The stock market aspirant wants to finance the purchase of further pharmaceutical products and pay back part of his 2.45 billion euro debt. Cheplapharm should thus be the first IPO of the year on the Frankfurt Stock Exchange. The first listing would therefore be expected in February, the company is only committed to the first quarter.

An IPO was first discussed in March last year and even announced for autumn 2021.

With the usual justification of an uncertain capital market environment, however, this was abandoned.

Including debt, Cheplapharm could be valued at around ten billion euros.

In March 2021 there was still talk of seven to eight billion.

living from acquisitions

In the past 25 years, Cheplapharm has bought a portfolio of more than 100 pharmaceuticals and dietary supplements as well as medical devices and cosmetics for more than three billion euros, usually after their patent protection had expired. In the first nine months of 2021, the company's sales amounted to 793 million euros, 60 percent more than in the previous year, and for the year as a whole it should be more than one billion euros.

However, Cheplapharm bought products for 920 million euros last year alone, including a portfolio of drugs against cardiovascular and metabolic diseases from the Japanese pharmaceutical company Takeda.

"We believe we are the partner of choice for leading global pharmaceutical companies looking to divest from off-patent pharmaceutical products," said Co-CEO Braun.

Cheplapharm has belonged to the Braun family since 2003, more precisely to Braun Beteiligungs GmbH, a vehicle of the former pharmaceutical manager Norbert Braun.

High debts

The shopping spree at drug companies such as AstraZeneca, Novartis, Roche and Sanofi is set to continue in 2022. The takeover of further assets for more than 1.8 billion euros would be “examined at short notice”, said Cheplapharm. The operating result (Ebitda) after nine months was 481 million euros. Cheplapharm has outsourced production and sales to other companies. The export share is more than 90 percent. 

So far, the company has financed itself primarily through the issue of high-yield bonds. The three outstanding bonds, which mature in 2027 and 2028, add up to a volume of 1.51 billion euros, according to the financial information service Bloomberg. In addition, there are around another billion in corporate loans with a term until 2025. The bonds have an annual interest rate of 3 percent, but have a rather weak rating of "B". In December, however, Moody's raised the rating from “negative” to “stable”. Moody's put the ratio of gross debt to operating profit at 4.5 to 5.5.

Among other things, Moody's certified the company's good therapeutic and geographic diversification and good cash inflows, but criticized the "structural decline in earnings" from the non-patent-protected part of the portfolio. The company is therefore forced to buy constantly in order to at least maintain its sales. In addition, the financing is aggressively structured. For example, gross debt more than tripled between the end of 2018 and September 2021.

However, the five IPOs of the past year do not offer a particularly good balance sheet.

With the exception of Vantage Towers, which is around 27 percent above the issue price, all shares lost 30 percent or more compared to the issue price.

Anyone who had invested the same amount in all shares would have lost around 25 percent.

Weighted by volume, things look a little better, since the loss would have been limited to just under 3 percent.

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