Specialty pharmaceutical multinational Alpharma Inc today announced the sale of its active pharmaceutical ingredients (API) business to private equity and venture capital group 3i for $395 million. There is no financing condition obliging 3i to conclude the transaction.

For the nine months ended 30 September 2007, Alpharma's API had net sales of $138.7 million and operating income of $30.7 million. The sale includes manufacturing facilities in Copenhagen, Denmark; Oslo, Norway; Budapest, Hungary; and Taizhou, China.

The final purchase price is subject to adjustment based on the closing net cash balance and working capital of the business and is Alpharma expects to generate net proceeds, after taxes, fees, and expenses, of approximately $365 million, which it plans to reinvest the proceeds in its pharmaceutical and animal health divisions.

"We believe this diversified combination positions us well to deliver strong growth with a stable foundation in the years to come," said Dean Mitchell, president and chief executive officer of Alpharma. "In addition, the increased focus and decreased complexity of our business mix, combined with a potential share buyback, will enable us to enhance value to our shareholders."

Though it has been investing continually in its API business, Alpharma's decision to divest the business was partly due to margin pressures caused by the emergence of Indian and Chinese competitors, who as Mitchell said, "have very different expectations in terms of profitability they expect to see form their API businesses."

He said big pharma companies, concerned about their cost-base, were becoming much more opened-minded about sourcing their API products from low-cost markets. 

Accordingly its decision to hive-off the API business while it was profitable and invest in its proceeds in its pharmaceuticals business that includes a presence in the fast-growing injectable generics market with a product portfolio of active ingredients and finished dosage forms in a number of antibiotic products such as Vancomycin, Bacitracin and Polymyxin.

The Norwegian Alpharma Inc. was formed in 1994 through the restructuring of A L Laboratories Inc., Dumex A/S and Apothekernes Laboratorium AS.

Its API business develops and supplies specialist active pharmaceutical ingredients, that include a line of fermentation-based active pharmaceutical ingredients and one chemically-synthesised active pharmaceutical ingredient used, primarily by third parties, in the manufacture of finished dose pharmaceutical products.

The transaction is expected to close in the second quarter of 2008, pending regulatory approvals and other customary closing conditions.

3i has invested in pharma companies such as Betapharm and Domantis, over the last 15 years and plans to install industrialist Peter Chambré as a non-executive chairman on the company.

Banc of America Securities LLC acted as financial adviser and Cravath, Swaine & Moore LLP acted as legal adviser to Alpharma in this transaction.