Essex Woodlands’ Bet on Bryan Morton Pays Off, as EUSA Sells to Jazz Pharma

Apr 30 2012

Essex Woodlands Health Ventures will distribute more than $200 million as a result of the $650 million sale of portfolio holding EUSA Pharma Inc., a company it launched by teaming up with entrepreneur Bryan Morton.

EUSA is merging with publicly traded Jazz Pharmaceuticals PLC in a $650 million cash deal that also includes a potential $50 million cash milestone payment. Essex Woodlands owns a third of EUSA, according to Managing Director Petri Vainio.

The company, which raised about $275 million from a group that includes Essex Woodlands, Advent Venture Partners, 3i Group PLC, NeoMed Management, NovaQuest, SV Life Sciences, and TVM Capital, expects to complete the merger in June. Essex Woodlands, which first invested in 2006, declined to disclose the amount it invested in EUSA.

The deal is the result of an idea by Morton to build a transatlantic pharmaceutical company by acquiring drug-makers in Europe and the U.S. involved in the fields of cancer, critical care, and cancer supportive care. Morton pitched the plan to Essex Woodlands after selling his last company, Zeneus Holdings Ltd., to Cephalon Inc. in a $360 million deal that closed in 2005. EUSA, which has corporate offices in the U.K. and in Langhorne, Pa.., formed in 2006.

In early 2007, EUSA raised $175 million to make what turned out to be its most important purchase, French drug company, OPi SA. The deal brought in Erwinase, a treatment for acute lymphoblastic leukemia that was approved in Europe at the time but not in the U.S. A year later, EUSA raised over $50 million to buy a U.S. company, Cytogen Corp. This gave it a U.S. sales team and additional products, such as Caphosol, a treatment for oral mucositis, a complication of cancer treatment.

In November 2011 EUSA secured U.S. approval for Erwinaze (the U.S. name of the drug), a life-saving treatment for certain acute lymphoblastic leukemia patients, according to the company. Using the sales staff acquired through Cytogen, EUSA introduced the drug immediately, Vainio said. The success of that launch and EUSA’s growing revenue drove this deal, he said. Morton, EUSA’s chief executive, wasn’t immediately available for comment.

EUSA, which had first-quarter net sales of about $46 million, was on a revenue run rate of $200 million and was on pace for earnings before interest taxes depreciation and amortization of $80 million for this year, Vainio said. Jazz Pharma projected Erwinaze would add $210 million to $230 million to its revenue in 2013. The $50 million milestone payment is based on the drug achieving a U.S. net-sales target in 2013.

Early on, EUSA said that it planned to build a billion-dollar business. As a profitable company with growing sales, EUSA could have raised capital to acquire additional drugs to drive its revenue to the $400 million to $500 million range, Vainio said. But investors and the company chose to accept Jazz Pharma’s offer instead of taking the risk of expanding further on their own.

Had EUSA continued on “there is no doubt in my mind that Bryan would have built a multi-billion dollar company,” Vainio said. “Seven hundred million dollars is not a billion, but it is an [awfully] good outcome for everybody involved.”

Jazz Pharma, also a specialty-pharmaceutical company, sells products in the area of narcolepsy, pain, psychiatry and women’s health. This deal gives diversifies its portfolio and gives it what should be a reliable seller in Erwinaze, said Stephen Brozak, president of WBB Securities LLC.

Brian Gormley

(c) 2012 Dow Jones & Company, Inc.

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