Novartis to Acquire Dermatology Company Fougera Pharmaceuticals for USD1.5 Bil.

Novartis (Switzerland) has signed a definitive agreement for the acquisition of generic dermatology company Fougera Pharmaceuticals (United States). According to the terms of the agreement, Novartis will be acquiring Fougera in an all-cash transaction for USD1.525 billion. The sellers of the company are a group of private equity firms led by Nordic Capital, Credit Suisse affiliate DLJ Merchant Banking, and Avista Capital Partners. The transaction, which requires regulatory approval, is expected to be completed in the second half of 2012. The acquisition, which will be financed from Novartis's existing cash flow and cash resources, is expected to be accretive to core earnings per share (EPS), and represents a multiple of 8.8 times Fougera Pharmaceuticals' earnings before interest, tax, depreciation, and amortisation for 2011 of USD173 million.

Fougera will be folded into Novartis's generics division Sandoz, thus making it the leading generic dermatology medicines company in the US and the world. Overall, Sandoz is already the second largest generic producer globally.

According to the global head of Sandoz, the addition of Fougera's portfolio of medicines will help further diversify Sandoz products, as well as improve the company's ability to "help patients and customers around the world by providing easier access to high quality, affordable dermatological medicines". Furthermore, the acquisition of Fougera will help Sandoz to develop and manufacture semi-solid dermatological products, specifically creams and ointments.

The president of Sandoz US, Don DeGolyer, commented that owing to the fact that the companies cater to many of the same customers in the US, the integration of Fougera would create considerable cost and sales synergies with Sandoz's US generics business.

Outlook and Implications

Fougera pharmaceuticals, which was previously a part of Swiss firm Nycomed, and which has operated on a standalone basis since the sale of Nycomed to Takeda Pharmaceuticals (Japan) in 2011, had reported 2011 revenues of USD729 million. The company has two main business: Fougera, operating in the US dermatology generics market with a portfolio of 45 products and 200 stock-keeping units (SKUs); and PharmaDerm (US), which is a branded speciality pharma business with 17 brands and more than 40 SKUs.

Novartis recently reported a 2% year-on-year decrease in net sales during the first quarter of 2012 (see Switzerland: 24 April 2012: Novartis Reports 2% Decrease in Net Sales During Q1). The fall in overall Novartis sales was partially triggered by a 10% decline in Sandoz sales in the first quarter, largely driven by falling sales in the US and Germany.

The acquisition of Fougera Pharmaceuticals and its integration into Sandoz makes Sandoz the number one generics dermatology company in the US and the world, and will help the company tap into the USD2.1-billion dermatology sector in the US. Sandoz will be looking to diversify and strengthen its portfolio of products through this acquisition. In addition, the company is hoping to leverage Fougera's existing portfolio of generic dermatology medicines, as well as use Fougera's technology to further develop its pipeline of products. Sandoz will also be looking to expand the sales base for Fougera's products across the world, using its large global sales force to penetrate additional markets with Fougera products.

The move into dermatologicals would also solidify Sandoz's leadership as a producer of high-value-added and difficult-to-make generics. By diversifying into semi-solid formulations, Sandoz will be well prepared to enter the market promptly once patented versions of cream-based originator products face patent expiry. Manufacturing capabilities from other generic manufacturers—including the largest generic drug maker globally, Teva (Israel)—is also more limited in the semi-solids field, thus providing Sandoz with a competitive edge.