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Sandoz acquires Fougera Pharmaceuticals
June 2012
by Lloyd Dunlap  |  Email the author


BASEL, Switzerland—Novartis AG has signed a definitive agreement to acquire specialty dermatology generics company Fougera Pharmaceuticals. Under the terms of the agreement, Novartis will acquire the business, which is based in Melville, N.Y., for $1.525 billion in an all-cash transaction.
Fougera, a specialty dermatology business with 2011 net sales of $429 million, employs approximately 700 people across its two primary sites in New York. Fougera operates two main businesses: Fougera, a leading player in the United States' $2.1-billion dermatology generics sector with 45 products and more than 200 stock keeping units (SKUs) and PharmaDerm, a branded specialty pharma business with 17 brands and more than 40 SKUs.  
The transaction is pending regulatory approvals and is expected to be completed in the second half of 2012. Based on Fougera's 2011 earnings before interest, taxes, depreciation and amortization of $173 million, the acquisition represents a multiple of 8.8 times that value. The transaction is expected to be accretive to core earnings per share and will be financed from the group's existing cash resources and cash flow. The transaction meets Novartis' strict financial criteria for acquisitions relative to targeted cash flow return on investment metrics.  
Fougera has strong dermatology development and manufacturing expertise, with numerous launches planned for 2012 and beyond. The acquisition strengthens Sandoz's differentiated products strategy by complementing its existing global positions in biosimilars and generic injectables, anti-infectives and ophthalmics.  
The acquisition also creates another strong global growth platform for Sandoz, the generic pharmaceuticals division of Novartis. The U.S. dermatology generics industry is an attractive industry segment, with 2011 sales of $2.1 billion and strong double-digit growth in recent years. Based on 2011 IMS data, the combined businesses will become the number one global company in generic dermatology medicines, with estimated annual global sales of nearly $620 million, primarily in the United States.
"The addition of Fougera's leading portfolio further strengthens Sandoz's differentiated products strategy and improves our ability to help patients and customers around the world by providing easier access to high-quality, affordable dermatological medicines. Fougera brings us valuable technical capabilities in the area of topical dermatological products, particularly in the development and manufacturing of semisolid forms such as creams and ointments," said Jeff George, global head of Sandoz, in a statement.
While Novartis declined to comment on future organizational matters, a company spokesman says the company does "intend to retain Fougera's existing development and manufacturing infrastructure."  
"Fougera and Sandoz serve many of the same customers in the U.S., creating significant sales and cost synergies with Sandoz's sizable U.S. generics business," says Don DeGolyer, president of Sandoz U.S. "We welcome the team from Fougera Pharmaceuticals into Sandoz and Novartis."  
The Novartis-Fougera deal comes at a time when generic M&A activity is heating up after its post-financial crisis downturn beginning in 2007. In June 2009, Jefferies significantly expanded its Healthcare Group to become one of the largest and most experienced healthcare investment banking teams in the world, the corporate website states, with 75 professionals and 19 coverage officers averaging 15 years of healthcare investment banking experience. The group maintains offices in New York, San Francisco, London, Mumbai and Hong Kong.
When Takeda Pharmaceutical bought Nycomed Pharma in September 2011, Fougera—Nycomed's generic operation—was acquired by private equity groups. Jefferies, along with Novartis, was able to help "unlock the situation," says Tommy Erdei, managing director of Jefferies' healthcare investment banking group. He notes that Jefferies ' generic pharma transaction activity grew significantly in 2011 and continues strong. Over the past two years, the company has advised on 10 generic pharmaceutical M&A transactions.
Erdei notes that the ongoing patent cliff afflicting branded pharmaceutical makers has been accompanied by a slowdown in many easily manufactured generics.  
"There may be 100 to 200 companies that can make tablets by the billions, which makes it difficult to make money long term. It's like a hamster wheel," he says. A multibillion-dollar blockbuster drug such as Lipitor, off patent, can be chopped up into a hundred $10-million segments almost overnight. Conversely, dermatological products such as Fougera's that largely feature creams and ointments, present a relatively high barrier to entry. Among such products—even at annual sales of $200 million to $300 million—a generic company can expect to pick up 10 to 15 percent of the branded products sales, or as much as $30 million to $40 million annually.

Novartis-Veridex alliance to study circulating tumor cells in prostate cancer
RARITAN, N.J.—Novartis Pharmaceuticals Corp., the U.S. affiliate of Basel, Switzerland-based Novartis AG, has joined with Veridex LLC, a Johnson & Johnson company, to encourage and facilitate research involving circulating tumor cells (CTCs) as a potential biomarker in metastatic prostate cancer, according to a Veridex announcement on April 23.  
As part of the initiative, Veridex will support a prospective, single arm, open-label study designed to investigate the effect of zoledronic acid on CTCs in patients with metastatic castration-resistant prostate cancer.  
The study population will initially consist of a representative group of 60 CRPC patients with metastatic bone disease from five to 10 study centers in Germany. The study will investigate the number of CTCs in study patients who receive zoledronic acid 4mg administered every four weeks for three months. The primary objective of the study is to determine the proportion of patients with decreased CTCs at 12 weeks after first infusion of zoledronic acid.  
"Our alliance with Novartis further highlights the growing interest in CTCs as a potential biomarker in treating patients with metastatic prostate, breast and colorectal cancers," said Dr. Robert McCormack, head of technology innovation at Veridex, in a statement. "We look forward to further investigating the potential predictive benefit of CTCs in metastatic prostate cancer clinical studies as there are currently limited ways of assessing therapeutic benefit in this disease, especially when it has metastasized to the bone."
Code: E061203



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