So much for Galenika Pharmaceuticals' only bidder. Despite the growth potential in Galenika's home country of Serbia, Valeant ($VRX) was the only suitor so far willing to enter a market rife with corruption. Now, it has backed out of its offer to buy the ailing state-run drugmaker amid agitation in Belgrade over privatization.
In a letter to the Serbian minister of finance, Mirko Bogdanov, head of the European unit of Valeant Pharmaceuticals North America, cited Valeant's recent $8.7 billion acquisition of Bausch + Lomb as one factor in the decision to rescind the offer, according to Reuters. But he also noted the "hostile attitude" of Galenika trade unions and employees. Thursday, several Galenika union activists protested outside a Belgrade government building and called for an end to privatization efforts, the news service reported.
Valeant's move puts the Serbian government in a pickle. Galenika has about $223 million in debt, and it needs about €50 million in additional capital in 2013. The bid solicitation is part of a government effort to sell off bloated, unprofitable state enterprises and slim down its budget. But Galenika is short on takers, and it's not difficult to see why.
Emerging markets are all the rage for pharma companies frustrated with the stagnation in Western markets, and Serbia certainly has growth potential. According to domain-b.com, Galenika is a major drugmaker in the Balkans, producing generics, pharmaceutical raw materials, dietetic supplements, medical devices and dental products that it exports to Africa, Asia, Russia and southeastern Europe.
But the Serbian market is dotted with red flags. Just over a year ago, several Big Pharma companies were handed indictments over a Serbian bribery investigation, and this May, Serbian police arrested 8 Galenika managers charged with embezzling €12 million in 2008 and 2009. That may be part of the reason companies haven't stepped forward for Galenika, which extended its bidding deadline for the fourth time last month. And now, the June 14 cutoff is upon it.