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UCB to Sell Generics Business, Focus on Core Segments

UCB SA (UCBJF) announced that it has entered into an agreement with Advent International and Avista Capital Partners for the sale of its specialty generics subsidiary, Kremers Urban Pharmaceuticals Inc., for gross $1.525 billion in cash.

UCB said that it has decided to sell its specialty generics subsidiary as a part of its long-term growth strategy. The company will now focus on its core business areas – neurology and immunology. The money received from this divestiture will be used to reduce net debt, increase strategic investments and accelerate pipeline development.

Although the adjusted financial outlook for UCB’s core business remains unchanged, the company lowered its total revenue outlook for 2014 to the range of €3.15 billion – €3.25 billion (previous guidance: €3.5 billion – €3.6 billion). UCB now expects core earnings per share in the range of €1.40 – €1.55 (previous guidance: €1.90 – €2.05). Kremers Urban will be treated as ‘discontinued operations’ from Jan 1, 2014 onwards.

The company will reveal details regarding the transaction, slated to close in the first quarter of 2015, on its fourth-quarter and full year 2014 conference call (slated for Feb 27, 2015).

Our Take

We are positive on UCB’s decision to divest its specialty generics business. This move will allow the company to focus on its core areas of expertise.

UCB is not the only company in the health care sector looking to divest non-core segments – recently a number of companies divested their business segments to realign their portfolios. In Apr 2014, Novartis AG (NVS) announced that it will divest its Vaccines business (excluding flu) to GlaxoSmithKline (GSK) for $7.1 billion plus royalties and its Animal Health Division to Eli Lilly (LLY) for approximately $5.4 billion. In turn, Novartis would acquire Glaxo’s oncology products for $14.5 billion and up to $1.5 billion as milestone payments.

UCB carries a Zacks Rank #3 (Hold). A better-ranked stock in the health care sector is Lannett Company, Inc. (LCI) carrying a Zacks Rank #1 (Strong Buy).

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