Sandoz acquires Fougera Pharmaceuticals

$1.5 billion deal makes Novartis group the top global generic dermatology medicines company

Lloyd Dunlap
BASEL, Switzerland—Novartis AG has signed a definitiveagreement to acquire specialty dermatology generics company FougeraPharmaceuticals. Under the terms of the agreement, Novartis will acquire thebusiness, which is based in Melville, N.Y., for $1.525 billion in an all-cashtransaction.
 
Fougera, a specialty dermatology business with 2011 netsales of $429 million, employs approximately 700 people across its two primarysites in New York. Fougera operates two main businesses: Fougera, a leadingplayer in the United States' $2.1-billion dermatology generics sector with 45products and more than 200 stock keeping units (SKUs) and PharmaDerm, a brandedspecialty pharma business with 17 brands and more than 40 SKUs.
 
 
The transaction is pending regulatory approvals and isexpected to be completed in the second half of 2012. Based on Fougera's 2011earnings before interest, taxes, depreciation and amortization of $173 million,the acquisition represents a multiple of 8.8 times that value. The transactionis expected to be accretive to core earnings per share and will be financedfrom the group's existing cash resources and cash flow. The transaction meetsNovartis' strict financial criteria for acquisitions relative to targeted cashflow return on investment metrics.
 
 
Fougera has strong dermatology development and manufacturingexpertise, with numerous launches planned for 2012 and beyond. The acquisitionstrengthens Sandoz's differentiated products strategy by complementing itsexisting global positions in biosimilars and generic injectables,anti-infectives and ophthalmics.
 
 
The acquisition also creates another strong global growthplatform for Sandoz, the generic pharmaceuticals division of Novartis. The U.S.dermatology generics industry is an attractive industry segment, with 2011sales of $2.1 billion and strong double-digit growth in recent years. Based on2011 IMS data, the combined businesses will become the number one globalcompany in generic dermatology medicines, with estimated annual global sales ofnearly $620 million, primarily in the United States.
  
"The addition of Fougera's leading portfolio furtherstrengthens Sandoz's differentiated products strategy and improves our abilityto help patients and customers around the world by providing easier access tohigh-quality, affordable dermatological medicines. Fougera brings us valuabletechnical capabilities in the area of topical dermatological products,particularly in the development and manufacturing of semisolid forms such ascreams and ointments," said Jeff George, global head of Sandoz, in a statement.While Novartis declined to comment on future organizationalmatters, a company spokesman says the company does "intend to retain Fougera'sexisting development and manufacturing infrastructure."
 
 
"Fougera and Sandoz serve many of the same customers in theU.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 theteam from Fougera Pharmaceuticals into Sandoz and Novartis."
 
 
The Novartis-Fougera deal comes at a time when genericM&A activity is heating up after its post-financial crisis downturnbeginning in 2007. In June 2009, Jefferies significantly expanded itsHealthcare Group to become one of the largest and most experienced healthcareinvestment banking teams in the world, the corporate website states, with 75professionals and 19 coverage officers averaging 15 years of healthcareinvestment banking experience. The group maintains offices in New York, SanFrancisco, London, Mumbai and Hong Kong.
 
When Takeda Pharmaceutical bought Nycomed Pharma inSeptember 2011, Fougera—Nycomed's generic operation—was acquired by privateequity groups. Jefferies, along with Novartis, was able to help "unlock thesituation," says Tommy Erdei, managing director of Jefferies' healthcareinvestment banking group. He notes that Jefferies' generic pharma transactionactivity grew significantly in 2011 and continues strong. Over the past twoyears, the company has advised on 10 generic pharmaceutical M&Atransactions.
 
Erdei notes that the ongoing patent cliff afflicting brandedpharmaceutical makers has been accompanied by a slowdown in many easilymanufactured generics.
 
 
"There may be 100 to 200 companies that can make tablets bythe billions, which makes it difficult to make money long term. It's like ahamster wheel," he says. A multibillion-dollar blockbuster drug such asLipitor, off patent, can be chopped up into a hundred $10-million segmentsalmost overnight. Conversely, dermatological products such as Fougera's that largelyfeature creams and ointments, present a relatively high barrier to entry. Amongsuch products—even at annual sales of $200 million to $300 million—a genericcompany 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-Veridexalliance 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 involvingcirculating tumor cells (CTCs) as a potential biomarker in metastatic prostatecancer, according to a Veridex announcement on April 23.
 
 
As part of the initiative, Veridex will support aprospective, single arm, open-label study designed to investigate the effect ofzoledronic acid on CTCs in patients with metastatic castration-resistantprostate cancer.
 
 
The study population will initially consist of arepresentative group of 60 CRPC patients with metastatic bone disease from fiveto 10 study centers in Germany. The study will investigate the number of CTCsin study patients who receive zoledronic acid 4mg administered every four weeksfor three months. The primary objective of the study is to determine theproportion of patients with decreased CTCs at 12 weeks after first infusion ofzoledronic acid.
 
 
"Our alliance with Novartis further highlights the growinginterest in CTCs as a potential biomarker in treating patients with metastaticprostate, breast and colorectal cancers," said Dr. Robert McCormack, head oftechnology innovation at Veridex, in a statement. "We look forward to furtherinvestigating the potential predictive benefit of CTCs in metastatic prostatecancer clinical studies as there are currently limited ways of assessingtherapeutic benefit in this disease, especially when it has metastasized to thebone."

Lloyd Dunlap

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