Novartis nabs Ebewe

Swiss drugmaker expands specialty generics business with $1.2 billion purchase of injectable drug unit

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BASEL, Switzerland—Novartis AG has reached an agreement to purchase Austrian drug developer Ebewe Pharma's injectable-drug unit for $1.2 billion in cash to gain generic copies of oncology medicines.

The acquisition gives Basel, Switzerland-based Novartis, Europe's second-largest drugmaker, 15 approved cancer medicines and another 20 experimental ones. The three most promising drugs in Ebewe's pipeline are copies of medicines that command annual sales of more than $5 billion.

"The addition of Ebewe Pharma's leading portfolio of oncology medicines fits our strategy and improves our ability to help cancer patients around the world by providing easier access to therapies. These medicines will remain the backbone of multi-drug treatments in the fight against cancer, one of the world's leading causes of death," said Dr. Daniel Vasella, chairman and CEO of Novartis, in a statement. "Ebewe Pharma will further strengthen our pipeline with many planned near-term launches."

Under the terms of the agreement, Novartis will take over the research, development and manufacturing assets of Ebewe's business. This includes tangible assets, such as a production site in Austria, intellectual property and related expertise. The deal, however, excludes Ebewe's separate, smaller neurological products business.

Novartis said the transaction would give its generic pharmaceuticals division Sandoz the opportunity to create a "strong global platform" for future growth. Ebewe deals primarily in generic injectable cancer treatments, including paclitaxel, epirubicin and carboplatin, which are standard ingredients of chemotherapy programs for various types of cancer.

According to Eric Althoff, director of Global Media Relations for Novartis, Sandoz' acquisition of Ebewe Pharma is in line with the Novartis strategy to pursue "bolt-on" acquisitions that further strengthen its healthcare portfolio.

"In particular, Ebewe offers broad and highly complementary capabilities in their portfolio, with more than 15 marketed generic injectable medicines, as well as a differentiated R&D portfolio," he says. "Injectables are a key component of Sandoz differentiation strategy, which focuses on higher-value 'difficult-to-make' products. Combined, these factors offer the opportunity to improve access to injectible cancer drugs for patient worldwide."

Ebewe Pharma, an Austrian company with approximately 500 associates, also has a differentiated development portfolio with more than 20 distinct molecules that include significant near-term launch opportunities.

"As the world market for generic injectables to treat cancer continues to expand, our specialty generics business will enjoy a much broader global reach as part of Sandoz. We will also be able to offer greater benefits to patients and healthcare providers while creating a more competitive growth platform for our complementary businesses," says Friedrich Hillebrand, Ebewe's CEO.

Sandoz will form a new global center of excellence around this business, which will be led by Hillebrand and based in Unterach, Austria. Key priorities for this new unit include capitalizing on Ebewe's capabilities in hospital marketing and strong customer partnerships, skills in developing differentiated generics and expertise in injectables manufacturing.

"Certain injectables-related production, development, regulatory and portfolio management operations will be integrated with this new center of excellence," notes Althoff. "Back-office functions may be integrated into other Sandoz operations; decentralized resources, including sales and marketing, will be integrated within Sandoz on a country-by-country basis."

It is likely that the Ebewa acquisition alone won't breathe new life into Novartis' generics business, Vasella stated.

"The acquired business isn't big enough" to revive the generics business, Vasella said in a statement. The key reasons for the unit's lackluster performance in recent quarters were a lack of new product launches in the U.S., and the withdrawal of one product, also in the U.S., he said.

The deal boosts Novartis' offering of cancer products and underlines the Swiss drugmaker's strategy of offering its customers medicines ranging from cheap generics, when available, to branded products.

"It is the same customers—hospitals—that are buying the branded drugs and the generics," Vasella said.

Given the significant cost pressures in cancer therapy, Vasella said he expects the use of generic drugs to increase. The use of cheaper generics for standard treatments helps preserve cash that can be redeployed to be used on treatment with newer, more effective drugs, which are also more expensive, he said.

Analysts are calling Novartis' latest move a step forward.

"This really prepares Novartis for biosimilar launches," Fabian Wenner, an analyst at UBS in Zurich, told Bloomberg News. "The price is somewhat high, and many investors may not like this."

The Novartis deal comes in the wake of other recent overseas acquisitions, including GlaxoSmithKline PLC's recent acquisition of a 16 percent stake in African generic drugmaker Aspen Pharmacare Holdings Ltd. and sanofi-aventis' takeover of Czech generics company Zentiva.

"Although the diversification into generic drugs reduces the risk inherent in the overall health-care business away from pharmaceuticals, boosts growing sales in emerging markets and potentially capitalizes on the patent cliff in 2011-12, it tends to affect adversely an innovative drug maker's profitability and cash flow generation," says Britta Holt, an analyst for the pharmaceutical sector at rating agency Fitch Ratings Inc.

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