Friday, March 14, 2008

EUSA: Powering to Become the Next Shire?

Two-year old spec pharma EUSA Pharma continued its rapid product- and infrastructure-build-up this week with the $22.6 million cash acquisition of US oncology and pain control group Cytogen Corp.

EUSA—whose ambition is to become the next Shire—spotted a good moment to buy the ailing US group, whose shares have fallen steadily since early 2007, in part due to poorly-focused management (CEO Michael Becker was booted out last November). Thus even $0.62 per share represented a 35% premium to the company’s price on March 10.

And that’s not bad, considering that this acquisition completes EUSA’s transatlantic commercialization infrastructure, as well as slotting right into its therapeutic area focus. Cytogen is the “ideal complement to our business,” said Bryan Morton, EUSA’s founder and CEO, and previously CEO of Zeneus, the pan-European spec pharma acquired by Cephalon in December 2005 for $360 million.

Unlike most other spec pharma, EUSA’s goal has been to establish from the outset a business in Europe and in the US (as its name suggests). A tall order for a start-up, perhaps, but one that allows it to access a wider pool of product opportunities, larger growth potential, and to avoid the trap that many other European spec pharma hopefuls have fallen into: lack of focus. (See this IN VIVO feature for more background.) And while other European start-ups have found the road to spec pharma glory far longer and more tortuous than expected, EUSA has, so far, built what it said it would—and fast.

“Buying Cytogen took about three months,” Morton told the IN VIVO Blog. “That’s terribly long—we usually close such deals in about six weeks.” Since Cytogen was public, there were some more formalities to go through, he explains. The burdens of being public in part explain why EUSA didn’t reverse merge into Cytogen; instead it promptly de-listed the group (which, for its poor performance, would have been chucked off Nasdaq soon enough anyway).

With nine marketed drugs, five late-stage programs, a sales force in the US (Cytogen brings about 40 reps) and Europe (over 50 reps), and having raised a total of $275 million, EUSA almost makes building a spec pharma look easy. Morton’s experience and credibility helps; so does the fact that he explicitly sought out money from fresh VC funds (from founder-VC Essex Woodlands and from TVM, the lead in a recent $50 million round done in conjunction with the Cytogen deal), granting EUSA a 5-7 year runway to provide the payback.

But already, we have the “foundations of a world-class specialty pharma company” in place, according to EUSA’s Chairman Rolf Stahel (yes, he’s the ex-Shire CEO). Within the next five years, Morton hopes EUSA will be worth $1 billion—a mere tenth of Shire today, but moving in the right direction.

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