Novartis AG, Europe’s largest drugmaker, said it will spend $1.5 billion for closely held Fougera Pharmaceuticals Inc. in a deal to become the top seller of generic skin medications.
Fougera, based in Melville, New York, had sales of about $429 million in 2011 and is owned by private equity funds, including Nordic Capital, Avista Capital Partners and DLJ Merchant Banking, a subsidiary of Credit Suisse Group AG, the companies said yesterday in a statement. The all-cash acquisition will make Sandoz, the generic drug unit of Novartis, the global leader in generic dermatology medicines with an estimated revenue of $620 million, the companies said.
Novartis faces the loss of revenue as its top-selling drug, Diovan for blood pressure, meets generic competition this year. The Basel, Switzerland-based company bought the Alcon eye-care business and has introduced therapies to offset the loss.
“They need to make up revenue” lost from competition for Diovan, said Les Funtleyder, portfolio manager for the Miller Tabak Healthcare Transformation Fund, who owns Novartis shares. “Certainly generic pharmaceuticals is a very good way, in these cost-conscious times, to make up revenue.”
The U.S. market for generic dermatology drugs is about $2.1 billion, Novartis estimated in its statement.
Generic medicines like the specialty creams and ointments made by Fougera often require human clinical trials for regulatory approval, said Jeff George, head of the Sandoz unit. That means the products face less competition than copycat pills, he said.
‘Difficult to Make’
“The dermatologics are really difficult to make and we didn’t have the expertise in-house,” George said yesterday in a telephone interview.
Sandoz generated $9.47 billion in 2011 revenue, about 16 percent of sales for Novartis, according to data compiled by Bloomberg.
Fougera “is a pretty profitable company” as a result of its competitive advantages, George said. The company makes 45 generic products and 17 branded ones, primarily sold in the U.S., aimed at common conditions, including acne, eczema and genital warts. Novartis will try to expand sales of the products overseas, he said.
“That does help offset the patent cliff of Diovan,” George said.
Novartis will pay a multiple of about 8.8 times Fougera’s 2011 earnings before interest, taxes, depreciation and amortization in the transaction, the drugmaker said in its statement. The sale is expected to close in the second half of 2012, the companies said.
“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,” Don DeGolyer, president of Sandoz U.S., said in the statement.
Jefferies Group Inc. advised Novartis on the deal. Fougera was advised by Rothschild and Credit Suisse.