Pharma Co. Funds Pain Reliever Acquisitions

aaiPharma is continuing to expand its portfolio of branded pain management products through acquisitions. The company is in the process of completing a $260 million credit facility that will fund the acquisition of a portfolio of products from Elan Corp. for $100 million and refinance existing debt. The facility is split between a six-year, $160 million term loan and a four-year, $100 million revolver, with Bank of America , Wachovia Securities and CIBC World Markets leading the loan.

Moody's Investors Service has assigned a B2 rating to the revolver and term loan. Moody's notes the rating reflects the company's negative tangible net worth; its small, albeit growing, scale; relatively short history as a branded pharmaceuticals company and continued acquisition risk. Last year, the company purchased Darvon and Darvocet from Eli Lily for $211.4 million using debt that is now being refinanced. A spokeswoman for the company said aaiPharma is comfortable using debt as this form of financing does not dilute shareholder value (LMW, 11/17).

Moody's is concerned about aaiPharma's ability to smoothly transition the manufacturing of acquired products to in-house production or third parties. The company is in the process of transitioning Darvon and Darvocet manufacturing to in-house facilities and third parties from Eli Lilly's facilities. There are concerns that a disruption in production could adversely impact cash flow and earnings.

But the outlook is stable, reflecting the expectation that the company will successfully integrate the acquired products and that credit metrics will remain relatively stable over the near-term. The company's pro forma debt-to-EBITDA, adjusted for the financing and acquisition of Elan's pain management products, is 2.9 times. Also, the ratings are positively affected by the company's growing competitive position as a manufacturer and marketer of branded products, proprietary drug-delivery technologies and substantial reduction in debt since the Darvon and Darvocet acquisitions last year.