ADVERTISEMENT
2 /3 FREE ARTICLES LEFT THIS MONTH Remaining
Chemistry matters. Join us to get the news you need.

If you have an ACS member number, please enter it here so we can link this account to your membership. (optional)

ACS values your privacy. By submitting your information, you are gaining access to C&EN and subscribing to our weekly newsletter. We use the information you provide to make your reading experience better, and we will never sell your data to third party members.

ENJOY UNLIMITED ACCES TO C&EN

Business

Novartis Tops Generics Market

Swiss company's purchase of two firms will vault it into global leadership

by PATRICIA SHORT
February 28, 2005 | APPEARED IN VOLUME 83, ISSUE 9

FAMILY TIES
[+]Enlarge
Credit: LEK PHOTO
Hexal and Eon Labs will become part of a generics business that includes this plant operated in Slovenia by Lek Pharmaceuticals.
8309NOTW1_Lek_tif.JPG
Credit: LEK PHOTO
Hexal and Eon Labs will become part of a generics business that includes this plant operated in Slovenia by Lek Pharmaceuticals.

PHARMACEUTICALS

With acquisitions valued at roughly $8.3 billion, Novartis is moving into the top spot in the worldwide generic drug industry, which is currently undergoing a flurry of acquisitions and alliances.

Novartis has agreed to acquire the privately held German firm Hexal and a 67.7% share of Eon Labs, a publicly traded U.S. firm that shares owners with Hexal, for about $7.3 billion. Moreover, Novartis will launch a tender offer to acquire the remaining 34.6% of Eon for $31 per share, adding nearly another $1 billion to the price tag.

The acquired businesses will be integrated into Novartis' Sandoz division, which specializes in generics. Sandoz would have pro forma 2004 sales of $5.1 billion, a portfolio of more than 600 active ingredients in more than 5,000 dosage forms, and more than 20,000 employees. That will edge Sandoz in front of the current market leader, Israel's Teva Pharmaceuticals, which had sales last year of $4.8 billion.

Novartis decided several years ago to go against the grain of the R&D-based drug industry and build up its generics business, which now accounts for about 11% of its sales. The company says generics complement its prescription and over-the-counter products by providing leverage in manufacturing and in dealing with large drug purchasers.

In one of its first deals to support the strategy, Novartis acquired Slovenian generics producer Lek Pharmaceuticals in 2002. And last August, it completed the purchase of Canada's Sabex Holdings for $565 million.

In 2004, Sandoz itself had operating profits of $235 million, down 50% from the previous year, on sales of $3.1 billion, up 5% from 2003. The company blames the profitability decline on pricing pressures in Germany, where it has a small market share, and in the U.S. The Hexal/Eon deal aims at addressing the weaknesses in both those markets.

"The combination of Sandoz with Hexal and Eon Labs offers an outstanding opportunity to capitalize on the unique strengths of each company," Sandoz CEO Andreas Rummelt says. "Together, we will create a highly competitive leader with a comprehensive global presence and the expertise necessary for success in the rapidly changing generics market."

Rummelt
[+]Enlarge
Credit: NOVARTIS PHOTO
8309NOTW1_Ruem_tif_cxd.JPG
Credit: NOVARTIS PHOTO

However, some analysts question whether Novartis will be able to accomplish its aim of reducing pricing pressure.

"I am a little bit skeptical about the strategy, especially about investing in the two markets--Germany and the U.S.--where there are structural problems," says Birgit Kulhoff, a securities analyst with investment bank Sal. Oppenheim. "Will they be compounding the pricing pressure? Novartis says it won't, but I have my doubts." Kulhoff says the company has good arguments for the acquisition, but she sees them taking a long time to pay off.

Other generics deals are in the offing. One of the leading U.S. generics makers, Mylan Laboratories, is attempting to acquire the branded drugmaker King Pharmaceuticals, although the deal has hit roadblocks since it was announced last summer.

And last week, the Croatian firm Pliva agreed to cooperate on development and future marketing of its two most advanced biogenerics--erythropoietin and granulocyte colony stimulating factor--with Australia's Mayne Pharma. Pliva aims to become one of the world's top five generics companies within the next four years. Its annual sales are now close to $1 billion.

X

Article:

This article has been sent to the following recipient:

Leave A Comment

*Required to comment