Friday, November 06, 2009

Biovitrum Creates Rare-Disease Focused Spec Pharma with Swedish Orphan Buy

Sweden’s Biovitrum on November 5 stumped up just over half a billion dollars for compatriot Swedish Orphan, buying itself a tidy additional SEK800 million ($115 million) in revenues, an extended commercial network and a couple of near-term launch opportunities.

The move is yet another step in Biovitrum’s transformation into a specialty pharma company—coming just a week after it offloaded UK-based CNS discovery unit Cambridge Biotechnology Ltd., plus a few other assets, to Proximagen Neuroscience. Originally spun out of Pharmacia as a traditional R&D-focused biotech—albeit a particularly lucky one, cushioned by manufacturing revenues from Wyeth around hemophilia drug ReFacto—Biovitrum announced its turnaround ambitions in 2007.

Back then, newly-appointed CEO Martin Nicklasson, fresh from heading up global marketing at AstraZeneca, declared that the group was scrapping its primary care metabolic diseases pipeline, focusing on specialist programs, building out its commercial operations, and better leveraging its large molecule development and manufacturing expertise.

Few could argue with that strategy back in 2007; even fewer can argue with it now. Investors (those that are still around, anyway) don’t value risky discovery; cash and revenues are king. Europe’s always had a penchant for low-risk, revenue-generating in-licensing focused specialty pharma; the downturn has turned that penchant is a passion and it’s probably gone global.

So Biovitrum’s acquisition of Swedish Orphan “is strategically sound,” declares UK-based NomuraCode analyst Samir Devani, even though he acknowledges it came at “a premium valuation.” Unusually during these days of contingency-based dealmaking, the earn-out component of the deal was negligeable—just SEK 425 million ($61 million), associated with sales ramp-up of one of Orphan’s drugs. Over half the upfront will be paid in cash; Biovitrum plans a rights issue.

Still, a full upfront price-tag was to be expected, given that Swedish Orphan is private-equity owned (42% each by Investor Growth Capital and Priveq) and, with comfortable revenues, didn’t exactly need a fire-sale. What’s more, there was probably more than one suitor, since there aren’t that many niche-disease focused, pan-European commercial companies around. “Who else could they [BioVitrum] have gone after?” asks Devani. The Swedish pairing will help generate the estimated operating synergies of SEK 100 million by 2011 (by cutting head-office costs, for instance) and helps on the cultural front. “The two companies fit like a hand in a glove,” crows Nicklasson in the press release.

Orphan’s key asset is the marketed drug Orfadin, used for a rare fatal metabolic disease called Hereditary Tyrosinemia Type 1. NomuraCode predicts revenue of SEK 300 million this year, but more importantly, growth of 15-20% per annum, at least until patent expiry in 2017 in Europe (and 2013 in the US). Further near-term revenue is expected from the ongoing rollout of Multiferon, a form of interferon-alpha used for malignant melanoma, an intranasal vitamin B12 formulation for pernicious anemia (Nascobal) and from cancer drug Yondelis, approved as second-line treatment for soft-tissue sarcoma and in-licensed from PharmaMar in 2007.

Beyond that, Orphan doesn’t offer much of a pipeline; it’s essentially a commercially-focused organization, wooed for its in-licensing and marketing skills (over 60% of its products are in-licensed). That’s why the deal should be instantly accretive, creating a new group—Swedish Orphan Biovitrum—with Nicklasson at the helm, that generates sales from 60 orphan or niche products, has a handful of late-stage pipeline candidates and which is expected to achieve pro forma revenues of SEK 2 billion in 2009.

By 2015, that figure should have more than doubled to SEK 5 billion, according to management, not least thanks to leveraging Swedish’s European sales and marketing infrastructure to accelerate growth of Biovitrum’s existing drugs.

This won't be Biovitrum's last acquisition. But as the company grows, life will get tougher--as for any spec pharma group. Orphan drugs might not cut the mustard for a larger group--and niche products will be harder to find anyway, given that Big Pharma is also officially now on the hunt.

Maybe SOB will be acquired by a larger suitor, like Zeneus or Celltech before it. Or, even better, maybe it will stumble upon its own Adderall, the ADHD drug that made lucky Shire Pharmaceuticals' fortune.

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