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First Horizon Preps Interim Line Replacement

17 Mar 2002

Specialty pharmaceutical company First Horizon Pharmaceutical tapped a $152 million six-month interim credit line from Deutsche Bank to acquire anti-hypertensive drug Sular from AstraZeneca, and First Horizon is now planning to take out the facility with either permanent debt, an equity offering--private or public-- or a hybrid. "The interim line gives First Horizon flexibility in terms of deciding to pay down the debt through an equity offering or permanent debt while enabling First Horizon to act quickly on the transaction," explained Bala Venkataraman, cfo of First Horizon.

In deciding which option to take, Venkataraman is carefully gauging the temperature of the debt market. "The market was hot last quarter. Cephalon and Sunrise Assisted Living have recently issued converts," he said. King Pharmaceuticals has also issued equity, he added. "But, the market has got a lot tighter in the last quarter. Enronitis has burned banks, while Global Crossing and Kmart have left some gun shy," Venkataraman said. The specialty pharmaceutical sector is a very attractive sphere though, he noted, adding, "SPS companies have good cashflows and high margins, and that combination should not make lending an issue." He declined to comment further on which path First Horizon is planning to take or when a decision will be made. Further acquisitions are also possible in the near term, he noted, declining further comment.

The balance sheet in combination with specialty pharmaceuticals analyst, David Steinberg, played a key role in First Horizon selecting the bank to lead the deal, Venkataraman noted. "We have been tracking Sular for two years, and with the patent expiring in 2008, clearly maximizing the value of the asset until then is important," he added. The product was licensed to Zeneca in 1995, but when the mega-pharmaceuticals merged, AstraZeneca decided not to market the drug. First horizon has entered into a long-term manufacturing, supply and distribution agreement with Sular's current manufacturer Bayer.

17 Mar 2002