Cima seen remaining a fast grower -for Cephalon
Susan Feyder, Star Tribune
Published November 10, 2003 CIMA10
If Cima Labs Inc. investors found last week's $34-a-share buyout offer for the company vaguely familiar, there was a good reason.
That's the target price analysts had placed on the stock last spring, before anyone had an inkling the Eden Prairie-based company was about to go on the block.
The offer from Cephalon Inc. of West Chester, Pa., represents about a 25 percent premium over Cima's stock price of about $27 a share in early August, before Cima put itself in play by announcing a now-canceled merger offer from another suitor, aaiPharma Inc. of Wilmington, N.C. The Cephalon deal also is considerably better than the initial $22-a-share value placed on the aaiPharma deal, which was structured as a stock swap.
But given last spring's target price, it's debatable whether the Cephalon deal -- expected to close early next year -- will give Cima shareholders a better return on their investment than if Cima had remained on its own. Since that target price was set last spring, Cima's core business of making fast-dissolve drugs for big pharmaceutical companies has delivered two more quarters of impressive revenue gains. The company has a pipeline of promising products in the works, including its first proprietary product, which has the potential to be a blockbuster.
Tony Green, an analyst at Craig-Hallum Capital Group in Minneapolis, said he believes Cima's current operating results would justify a 12-month target price of $40 a share or more. That's based on products Cima has in production, plus the prospect of a couple more the company is developing with pharmaceutical partners to take to market in the next several months.
As recently as last year, retired CEO John Siebert projected 30 percent top and bottom-line growth for Cima for the next few years, Green said.
"That's a pretty high sustainable level. You have to be pretty confident to say something like that," Green said.
Green estimates that Cima is the biggest player in the market for fast-dissolve drugs, which has grown from around $400 million in U.S. sales in 2000 to about $800 million this year. Sales of prescription and over-the-counter drugs that dissolve quickly in the mouth without water are expected to reach $1.4 billion domestically by 2005, according to industry estimates. Once considered only for children and the elderly, fast-dissolve drugs have caught on as convenient alternative to pills.
Cima began making its first fast-dissolve product, children's painkiller Tempra First Tabs, for Bristol-Myers Squibb Co. in 1997. Since then it has launched five more products for other partners and seen its sales climb from about $7.6 million in 1998 to $46.6 million last year. The gain in royalty revenue has been especially notable -- $374,000 in 1998 to $11.7 million in 2002.
Cima spent about $37 million last year to expand its manufacturing, bottling and research-and-development capacity in Eden Prairie and Brooklyn Park. By the end of this year, it will have spent another $25 million to $30 million to increase production capacity at both locations.
Even so, demand for its products is so strong that company officials recently told analysts they are operating the facilities around the clock. Green said Cima has had to outsource some of its packaging operations this year "just to keep up with making the tablets."
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