Furthering its mission to offer a wide range of drugs across many different price-points, Novartis announced May 20 that it is buying the specialty generic injectables business of Austria's privately-owned Ebewe Pharma.
The deal is worth €925 million ($1.2 billion) in cash - 4.4 times Ebewe's 2008 sales. It will allow Novartis to bolt onto its existing generics business, Sandoz, a portfolio of over 15 marketed injectable chemotherapy agents and more than 20 pipeline candidates.
Injectable generics represent an increasingly important share of the global oncology market - itself set to double in dollar sales terms by 2018, according to Datamonitor. As cost-pressures on expensive, branded drugs grow, so too does the opportunity for generics - especially those, like Ebewe's chemotherapy agents, which continue to comprise the mainstay of anti-cancer therapy.
"The deal allows us to achieve greater penetration in developed markets as cost-pressures become significant," said Novartis Chairman and CEO Dan Vasella in an interview. Ebewe's products, which include paclitaxel, carboplatin, methotrexate and gemcitabine, "ensure better patient access to backbone therapy options," he continued.
These products also further Novartis' long-standing diversification strategy, which is designed to offer payers and governments a broad range of different kinds of products across multiple price points (1"The Pink Sheet," Oct. 28, 2008, p. 11). In doing so, Novartis hopes to achieve both goodwill and better sales. Indeed, Vasella says he envisions selling Ebewe's high-value injectables alongside "our follow-on-biologics like EPO and GCSF [both approved in Europe, as Binocrit and Zanzio, respectively] and occasionally a branded drug, too."
The deal, although not close to the scale of Teva's $3.3 billion cash-and-stock acquisition of generic injectables group Sicor in 2003, nevertheless represents "good use of the group's cash to bolster the Sandoz division," writes Citigroup analyst Kevin Wilson in a same-day note.
A generic oncology growth platform
Sandoz will expand the Ebewe products' geographic reach through its global infrastructure, but beyond that, the company isn't expecting any cost synergies. It will instead create a new business unit around the Ebewe Pharma business, run by Ebewe Pharma CEO Friedrich Hillebrand.
With a specialized, fully-certified manufacturing facility for cytotoxic injectables as part of the deal, and the opportunity to leverage Ebewe's established manufacturing experience and its existing customer relationships, Sandoz says it's creating "a platform for future growth."
That's a reasonable proposition, given the estimated $9 billion in annual branded cancer drug sales set to lose exclusivity by 2015. Yet Ebewe's products - differentiated by advanced delivery devices, convenient formulations and innovative packaging - won't be at the bottom of the price pile. Indeed, the Austrian group "appears highly profitable," writes Wilson, with an estimated 28 percent margin in 2008, and compound sales growth of 20 percent since 2006.
A good deal for Novartis
Given all that, the price Novartis paid looks reasonable - and easily funded by Novartis' free cash flow. A deal price that is 4.4-fold greater than sales would be high to pay for a standard small molecule generics company, but it's not for specialist injectables. In 2004, for example, Novartis paid a hefty 6-times sales for Canada's Sabex, also focused on injectables (2"The Pink Sheet" DAILY, June 7, 2004).
Indeed, noted Vasella, this deal - for which he says there were no other potential buyers - "wasn't necessarily designed to maximize [value] from the seller's point of view, but [to offer] a good combination between price and quality of buyer."
Hillebrand led a management buy-out of Ebewe in 2001 from BASF AG after that group was acquired by Abbott Laboratories. He drove Ebewe's international expansion into over 100 countries, but then facing succession issues, decided to sell. Vasella claims that Novartis' presence in Tirol, Austria--where Ebewe is based--and a "good personal fit" helped persuade Hillebrand to let his company go.
Hillebrand's appointment as head of the new Sandoz division is open-ended, unlike the time-limited contracts of previous CEOs of generics businesses that Novartis has acquired. The Struengmann brothers, for instance - co-founders and co-CEOs at Germany's Hexal, which Novartis bought in 2005 for €5.65 billion - stayed on for just over a year in charge of various regional Sandoz business units. But "those were bigger businesses" and it was a question of need, explains Vasella. This is different; "we'll see how comfortable he is, and we are," says Vasella.
The acquisition leaves Ebewe with a small neurology portfolio and only three listed marketed drugs. The company was not available to comment on what would happen to these remaining assets.
- Melanie Senior (m.senior @elsevier.com)
This article is reprinted from "The Pink Sheet" DAILY –May 20, 2009
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