Novartis, of Basel, said it would buy Fougera through its Sandoz generics division and pay $1.53 billion in cash. The selling shareholders are Swedish buyout firm Nordic Capital; Credit Suisse Group's private equity arm, DLJ Merchant Banking Partners; and New York's Avista Capital Partners.
Fougera is based in Melville, N.Y., and employs about 700 people. The company posted 2011 sales of $429 million and Ebitda of $173 million, giving the deal an Ebitda multiple of 8.8.
"When you look at the return on investment, the acquisition seems pretty expensive," wrote Vontobel Research analyst Andrew Weiss in a note. He has a hold rating on the stock. "Novartis is currently facing a patent cliff and difficulties meeting manufacturing requirements. Alcon was a good investment but it can't pick up all the slack."
Fougera is the first significant purchase for Novartis since it spent $12.9 billion to mop up the 23% of U.S.-listed Swiss eye care company Alcon Inc. early last year. It had already bought a majority of Alcon from Nestlé SA for $38.7 billion in 2010.
The divestment delivers further rewards to Fougera's owners. The consortium split Fougera off from Nycomed Holding AS when it sold the Danish company to Japan's Takeda Pharmaceutical Co. Ltd. for €9.6 billion ($12.6 billion) in September.
Stockholm-based Nordic Capital bought a majority of Nycomed from the U.K.'s Amersham plc in 1999 and then sold it to a DLJ-led consortium that included Blackstone Group LP in 2002 for €1.3 billion. In 2005, Nordic Capital bought back in, picking up a 51% stake as part of a deal that valued the company at €1.8 billion.
When Takeda took Nycomed over last year, Nordic Capital pulled in more than 7 times its original investment of €320 million, and DLJ made several times its original $320 million investment. Blackstone, which had exited years earlier, made 170% on its $170 million investment, according to a source.
The acquisition comes as Novartis is in the midst of its own wave of patent expirations and trouble in its key hypertension franchise. Novartis' top-selling drug, blood pressure remedy Diovan -- which had $5.67 billion in total sales in 2011 and accounted for almost 10% of its $58.71 billion in global net sales -- will go off patent in the U.S. in September. Novartis' patent for Diovan in Europe expired in 2011.
The patents for blood pressure drug Exforge ($1.21 billion in sales in 2011) and breast cancer therapy Femara ($911 million in 2011) have already expired, while the patent expiration for cancer injection Zometa ($1.49 billion in 2011) in the U.S. looms in 2013. In addition, Novartis suffered a major setback for potential blockbuster hypertension drug Rasilez, which is sold in the U.S. as Tekturna, in December when a study testing the compound for Type 2 diabetes found that patients taking the drug might have an increased risk for stroke or kidney problems. Novartis terminated the trial, pulled back promotion of the drug and has since revamped Rasilez's labeling in Europe. The company has also said it is in talks with the U.S. Food and Drug Administration regarding the products.
Novartis expects to lose about $1.5 billion in sales this year from the Diovan patent expiration and has estimated that Tekturna/Rasilez will pull in less than half of their $557 million 2011 sales total.
Novartis has been restructuring ever since CEO Joe Jimenez took charge of the company in February 2010 to prepare for the coming headwinds. The company has aimed to cut costs and gear its business toward specialty drugs to boost profits and combat its patent problems. Novartis has since announced three massive waves of layoffs totaling more than 5,000 positions in Switzerland and the U.S. It announced in January that it plans to reduce its cost base by cutting 1,960 jobs in the U.S. in the second quarter to help it save about $450 million annually by 2013.
In a statement, Novartis expressed confidence that the Fougera acquisition would strengthen the company. "Sandoz will leverage its leading position both in the U.S. generics sector and its presence in over 130 countries worldwide to expand Fougera's existing sales base and bring its broad dermatology portfolio to new markets around the world," Novartis said.
Novartis hopes to complete the deal in the second half of the year. The company's shares rose Sfr0.22 in afternoon Zurich trade to Sfr49.94 ($54.55).
Adam Golden, Derek Stoldt, Tracy Romano and Dino Yiannopoulos of Kaye Scholer LLP provided Novartis with legal counsel. Tommy Erdei, Matthew Miller and Dung Nguyen of Jefferies & Co. are the buyer's financial advisers.
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