Apr 29 2011
Current European-based specialty pharma companies are in transition, awaiting key regulatory decisions, overhauling management or engaged in M&A. Their fates will help answer a critical question: under what circumstances can this class of companies continue to deliver long-term growth as independent entities?
On paper, the specialty pharma model – broadly defined as being focused on late-stage in-licensing and commercialization of specialist drugs – looks great right now. It’s low-risk, since there’s little or no expensive, unproductive R&D involved, and it prioritizes marketed drug revenues, which Europe’s
risk-averse investors love. As importantly, the model emphasizes the kinds of commercial and regulatory skills, including at the local and regional level, which are increasingly critical in today’s challenging and price-pressured health care market environment.
As humbled Big Pharma streamline their underperforming R&D operations, divest non-core therapy areas and seek to squeeze value out of, rather than simply shelve, de-prioritized assets, it ought to be party time, or at least an okay time, for Europe’s latest generation of specialty pharma.
The reality is somewhat different. Notwithstanding the success of a handful of players, including Sweden’s Meda AB, Swiss-based Nycomed International
Management GMBH, and, in particular, the one many companies explicitly seek to emulate, Shire PLC, most of the current class of European specialty pharma haven’t yet provided compelling returns for their investors. (See “Europe’s New Spec Pharma Models,” IN VIVO, September 2007.) Growing reimbursement and pricing hurdles in Europe are hitting companies of all sizes, and aren’t, it seems, any easier to navigate when there’s no R&D distraction. The region’s falling prices and sluggish growth overshadow the advantages gained from having a European infrastructure, while competition for any late-stage asset worth having – including in niche areas – is growing.
As such, turning the attractive theory of specialty pharma into practice “takes longer and requires more money than people thought,” remarks Shahzad Malik, general partner at Advent Ventures, an investor in two private specialty pharmas, transatlanticfocused EU SA Pharma Inc., and tiny Specialty European Pharma Ltd., which has operations in the UK and Germany.
Granted, for groups like this, it’s still early days. But ProStrakan Group PLC, founded by Shire’s creator, Harry Stratford, has had since 1995 to create value. Yet the company, listed at £1 per share in 2005, is now being sold to Japan’s Kyowa Hakko Kirin Co. Ltd. (a division of Kirin Holdings Co. Ltd.) for £1.30 per share, 2.7 times sales, or about £292 million ($473 million) – significantly under-valuing its growth prospects, according to several analysts.
(See “ProStrakan Secures Offer From Japan’s Kyowa Hakko, But Analysts Say Too Low,” “The Pink Sheet” DAILY, February 22, 2011.)
Exit by acquisition in itself needn’t spell failure: when Cephalon Inc. bought Zeneus Pharma in December 2005, paying $360 million in cash, or almost four times sales, Zeneus’ investors trebled their money in less than two years. The fact remains that larger, non-European players such as Kyowa or the highly acquisitiveValeant Pharmaceuticals International Inc., which in February 2011 snapped up Eastern European-focused PharmaSwiss SA (and is currently seeking to buy Cephalon), continue to seek European infrastructure and – as importantly – local expertise. (See “Valeant Continues Its Expansion With Acquisition Of PharmaSwiss,” “The Pink Sheet” DAILY, February 1, 2011; “As Cephalon Rejects Valeant Bid, Valeant Officially Goes Hostile,” “The Pink Sheet” DAILY, April 5, 2011.)
But it seems that buyers aren’t paying as much as they used to. Back in 2007, Celgene Corp. paid over seven times sales for Pharmion and its European infrastructure. Even just two years ago, in 2009, Biovitrum paid a healthy four times sales (or more) for pan-European orphan diseases player Swedish Orphan International to create Swedish Orphan Biovitrum (SOBI). (See “Biovitrum Creates Rare-Disease Focused Spec Pharma with Swedish Orphan Buy,” “The Pink Sheet”DAILY, November 6, 2009.) Late last year, however, Canada’s Axcan Pharma Inc.bought Belgium-based spec pharma Eurand NV on the cheap, according to analysts. (See “Axcan Is Buying European Specialty Pharma Eurand for $583M,” “The Pink Sheet” DAILY, December 1, 2010.)
With no IPOs to speak of, it has become a buyer’s market: thus in the case of private equity-owned Eurand, its investors – primarily Warburg Pincus – wanted out after more than a decade, and a trade sale was the only option. Warburg wants out of ProStrakan, too, in which it wasa founder investor. Warburg wouldn’t comment for this article on its desire to exit ProStrakan. But the investor was no doubt tired of waiting longer still for anemic returns on the company whose risk-profile was initially so appealing. (See “Investing Warburg Pincus Style,” In Vivo Europe Rx, January 2003.) A number of specialty pharma companies are at a crossroads. SOBI has yet to fully capitalize on the strategic logic of its merger, as it reels from a tough 2010 during which it lost several key revenue streams and was hit by European price cuts, while EUSA and Archimedes Pharma Ltd. are perched somewhat vulnerably in the hands of regulators, awaiting approvals for key products.
It’s no coincidence that those product approvals are in the US. Indeed, as events play out during 2011 in specialty pharma, some of the elements required for success – as a stand-alone, or via a valuable exit – may become clearer. One of these looks likely to be that Europe isn’t enough for sustainable growth and long-term independence. “A lot of [specialty pharma] companies are at a bridge point. Do they scramble [to sell, or buy] or do they wait?” asks Bryan Morton, president and CEO of EUSA. “It’s like a horse race; everyone’s trying to break through this glass ceiling…to
become an important mid-sized player.”
For several of Europe’s specialty pharma firms, the US is almost a sine qua non for achieving this goal – certainly for success beyond a quick exit as a European infrastructure base, anyway (which is all that Advent’s seeking from SEP). “If you want to be truly valuable, and grow to reach $1 billion in market capitalization, it’s very difficult, if not impossible, to do so without being in the US,” opines Petri Vainio, MD, PhD, a managing director at Essex Woodlands
Health Ventures in London, and a founding investor in EUS A. It’s easy to see why: the US remains the world’s single largest and most lucrative market, with a single regulatory process (even if downstream reimbursement approaches or surpasses European complexity), a single language and rapid adoption of new products.
EUSA is rare in having had transatlantic ambitions from the start: the company built up a US commercial organization, via acquisition, in parallel to its European organization. Most other European-based companies have tried to tackle the US later, having first built – or tried to build – a solid European
business. Archimedes’ US push came five years after inception in March 2010, with a then-record-breaking £65 million ($100 million) investment, mostly from Novo AS, provided for the purpose. (See “Archimedes Raises £65m for Leap to US,”START-UP , March 2010.) At the same time, Jeff Buchalter (previously CEO of Enzon Pharmaceuticals) was put in the driver’sseat – a tacit admission, say commentators, that Europe wasn’t cutting it.
As the company awaits US approval for its key asset, PecFent, a nasally delivered form of fentanyl, Buchalter admits that US success would be a “game-changer.” Still he denies that Europe plays second fiddle, noting PecFent was approved in the European Union for breakthrough cancer pain in September 2010. “The US is strategically important, but it’s wrong to position our European presence as just about keeping the company going while
we focus on the US ,” he argues.
The US is also strategically important to SOBI. Government austerity measures plus delayed pricing and reimbursement decisions “in almost every [European] country” mean “we’re definitely looking to accelerate growth in the US ,”emphasizes SOBI’s interim CE O Kennet Rooth, who built up the
company’s European infrastructure. For now, SOBI’s Nordic and European businesses still comprise 70% of its SE K 1.9bn ($300 million) revenues, though, and its paltry 3% growth in 2010 highlights the challenges of a sector that, in Nomura Code analyst Samir Devani’s words, is supposed to be “all about topline [growth] momentum.” Even analysts’ 2011 forecast of 7% revenue growth is barely better than Big Pharma.
Small wonder, then, that while SOBI cuts costs and headcount at home, the company has expanded its business development and M&A functions with the US in mind; this market remains“the prime focus for a niche product company acquisition,” says Rooth. SOBI currently has just a dozen or so people in the USselling Kineret (anakinra) for swelling and pain associated with rheumatoid arthritis and Kepivance (palifermin) for oral mucositis, both licensed from Amgen Inc.
However attractive the US market may seem, ProStrakan’s story provides a warning to European-based specialty pharma as to the challenges of successfully addressing it. Indeed, it was arguably ProStrakan’s US problems that led to the company’s sale. Not only have a partner’s manufacturing issues hurt sales of the company’s first US product, the chemotherapy-induced nausea patch Sancuso (granisetron), but there have also been regulatory setbacks to key products Abstral (sublingual fentanyl for cancer pain) and Fortesta (testosterone gel for hypogonadism). As a result, instead of turning
profitable during 2010, as was the plan, shares fell by almost 50% in September that year, the CE O was ousted, and private specialty pharma counterpart Norgine BV came in with an opportunistic purchase offer that prompted a formal sale process.
ProStrakan’s problem was lack of experience, say observers. For all the apparent homogeneity of the US , “not many [ex-U.S] companies know how” to
tackle the market, says EUS A’s Morton. In particular, he warns that many companies have made the mistake of thinking that a few contract reps is enough. ProStrakan signed an alliance with NovaQuest (then part of service provider Quintiles Transnational Corp.) in 2007. Using a contract service organization to launch in the US “may look flexible and risk-free, but it makes a mess of the product,” Morton argues. “Everyone thinks that the US is a soft-touch market; it’s not. It’s like Europe, only there are 50 countries, you need clearance in each state, and supply chain is a nightmare.” That’s why, according to Morton, companies need a substantial infrastructure on which to build a successful business; “you can’t just throw a few reps off a bus
into a sales force in the US ,” he declares. EUS A built its US presence via acquisition, buying Cytogen in 2008; it pursued a similar strategy in Europe. “We bought an infrastructure, polished it up, now it works,” sums up Morton.
The slight irony is that ProStrakan, after initially using a contracted sales force in the US , did end up hiring its own 56-strong team for Sancuso, knowing that Abstral, another oncology support product, was on the way. Those reps were left twiddling their thumbs – at considerable expense – while Sancuso
manufacturing was halted and until Abstral got final approval in January 2011. (See “Abstral Approval May Fetch ProStrakan The Valuation It’s After,” “The Pink Sheet” DAILY, January 11, 2011.)
As such, the story’s not so clear cut for Buchalter. “It comes down to understanding the market dynamics. If you understand the dynamics, the strategy will follow,” he argues – whether that’s contracted reps or not. Key for him is to have the right senior team in place (for example, heads of managed care, marketing and quality assurance) to plan and execute that commercial strategy. And to wait until there’s a product to sell: Buchalter hasn’t hired any reps, contracted or otherwise, prior to FDA decision on PecFent (expected during 2011).
U K-based BTG PLC hasn’t even set up a direct presence in Europe at all, choosing instead to make its maiden move in the US . For that, it has taken the CS O route, hiring inVentiv Health to recruit a 19-strong acute care sales team to market anti-snake venom treatment CroFab (crotalidae polyvalent immune fab [ovine]) and digoxin overdose treatment DigiFab (digoxin immune fab [ovine]) that were returned after a US marketing contract with
Nycomed ended in October 2010. BTG has its own sales and marketing management, compliance, pharmacovigilance and medical affairs staff in the US and says the sales team, although employees of inVentiv for now, will eventually transfer over to BTG. Meanwhile, they “all carry BTG business cards and were recruited as if they were BTG employees,” says CEO Louise Makin.
Despite BTG’s size and lack of commercial experience the move makes sense, according to Nomura Code analyst Gary Waanders. “Previously, they were givingaway half the value [of the drugs] to Nycomed,”he remarks. There’s also a logic to using a CS O in the first instance, since “you can then pick and choose from inVentiv, saving yourself the recruitment headache.”
For several companies, the geographicpriority isn’t the US market, but instead high-growth emerging markets: at Nycomed, for instance, emerging market
sales represented nearly 40% of the company’s €3.2 billion ($4.5 billion) 2010 turnover; its biggest market is Russia, with Brazil second. By 2015, the company – which did a major acquisition in China in 2010 – estimates that emerging markets will make up 60% of its sales. The company’s US presence is limited to two dermatologyfocused subsidiaries (one of which is generics); it has partnered its other products, including Protonix (pantoprazole) with Pfizer Inc. and Daliresp (roflumilast) with Forest Laboratories Inc. Sweden’s Meda is also prioritizing fast-growing emerging markets. For now they account for just 15% of the company’s SE K11.6 billion sales, but “they’re growing by 20%, and so continue to be very important,” says VP, corporate development Anders Larnholt.
But although Nycomed and Meda are prioritizing emerging markets, they are choosing to do so only after having firmly established a pan-European base that accounts for the majority of their sales. As Larnholt points out, “Even though the growth comes from elsewhere, the value of the pharma industry is still
primarily in the US and Western Europe.”
Other, far smaller firms are also eyeing emerging markets. One is dermatology-focused Sinclair Pharma PLC. Unlike Meda or Nycomed, this company, with 2010 revenues barely reaching £30 million, can’t claim to have covered Europe yet. It has a direct presence in only France, Italy, Germany and Spain. But “why place your bet in a market that’s not growing?” asks CEO Chris Spooner. The Chinese dermatology market is growing at 30%, the Indian one at 21%. As such, “it would be disappointing if you accessed these markets and only got 5% growth,” he remarks.
Sinclair in December 2010 signed up regional partner Invida Group Pte. Ltd. to distribute its dermatology and wound-care products in 11 Asia Pacific markets, and on March 21 expanded that deal to include India. Private Invida began life as a contract sales organization, but has since established itself as a onestop-shop regulatory and commercialization partner for firms seeking to access the region.
Spooner claims that Sinclair’s dermatology assets – many of which are classed as medical devices – are precisely the kind of low-technology yet high-quality products that are best suited to emerging market dynamics. Skin-care treatments – being less expensive that most other drugs – represent “one of
the fastest growing areas in emerging markets right now,” argues Spooner, who took the helm of a shrinking, struggling Sinclair in 2009. The rising middle-class means that “a family that would never [previously] have treated excema suddenly has income, and can afford basic medicines themselves.”
But like Meda’s Larnholt, Spooner nevertheless insists that a European base remains critical to this strategy. “We have to be present in the core European markets, because the increasingly sophisticatedpatients in emerging markets want‘developed in Europe’ written on the box,” he explains. As such, it’s important to be seen as a European business; “it’s all about brand creation.”
Thus while describing Sinclair’s European business as a “feed” for emerging markets (where he plans to forge further multi-country product distribution deals), Spooner’s also recently expanded into the UK, via a merger with profitable hospital products-focused IS Pharma PLC, and is looking to build up in Germany, too. (See “Sinclair – IS Pharma’s All-Share Merger To Create Pan-European Specialty Firm,” “The Pink Sheet” DAILY, April 7, 2011.)
The Sinclair and BTG examples highlight how products can drive commercial strategy, and in doing so hit upon a chicken-and-eggstyle tension at the heart of resource-limited specialty pharma: in order to make a profit, should you focus first on building good infrastructure, assuming this will attract valuable products? Or is it possible to attract the products first, then build the appropriate infrastructure around them? The jury’s still out on whether either Sinclair or BTG’s product-driven approaches will work: Invida won’t start selling Sinclair’s products until mid-2011, and BTG’s key product opportunity in the US (and a big reason for setting up there) is varicose vein treatment Varisolve (polidocanol microfoam), still in Phase III.
Meanwhile, Norgine has already proven the benefits of an infrastructure-first approach. With a record of 23 consecutive years’double-digit growth, the private group has shown that it is possible to generate a competitive advantage from an unswerving focus on a European infrastructure. Indeed, for CEO Peter Stein, Europeancompanies that build up a US presence – however they do it – risk being distracted from their European business, and thus “starving the European infrastructure.” Plus, he claims companies playing in the US will “face the difficult choice of whether or not to compete for a US-only product”; a tough battle because there are more players offering the appropriate infrastructure. “You will inevitably face a choice….because [late-stage] in-licensing opportunities will only be available in Europe or the US,” says Stein; global rights will be hard to come by. So you either risk building a companythat goes two ways, with different portfolios on either side of the Atlantic, or you look to an internally developed pipeline, he says.
Building a truly pan-European commercial presence is harder and more expensive than building an equivalent US infrastructure, given Europe spans 27 countries, most with their own language, culture and reimbursement dynamics. But Norgine claims to be one of the few specialty pharma to have done it. With 11 affiliates across Western Europe, the company plans to expand its own presence in Poland and the Czech Republic, while covering the rest of Eastern Europe via its partner PharmaSwiss (now part of Valeant). Meda has a similarly expansive European infrastructure, albeit built via acquisition, rather than organically, as Norgine has done. Still, according to Stein, many of the smaller firms calling themselves pan-European “aren’t, really; they are actually Westerndeveloped-markets specialty pharma,” he argues, “trying to cover Europe and the US.”
And that puts them in a weaker position in attracting products for Europe, argues Stein. He claims that Norgine’s footprint and culture (it is headquartered in Holland but has no “home” market) offers a unique proposition: a single partner that can reliably cover the entire region, and also offers the late-stage development and registration expertise critical to success in Europe’s various markets. “These days, if you are going to emerge with a single product label, you’d better be sure that the development program is aimed at a target profile that will be successful in all [Europe’s] markets,” he says. Relying on a distributor limits that market knowledge gleaned from development; thus “what you’re doing is developing for the big five and hoping it works in Hungary, which it won’t always.”
Not all licensers will feel it necessary to grant Hungary the same priority as Germany or France. But as pricing and reimbursement hurdles intensify in Europe, the degree of local knowledge, and reaction time – for instance, to changes in hospital tender systems or reimbursement schemes – that Norgine claims to offer will become more valuable, particularly as companies embrace more specialist drugs with a limited or targeted audience. Relying on a patchwork of distributors across Europe would make it very difficult, Stein argues, “to handle an adverse event in Greece on a Friday night…
in order to respond within the seven day period across Europe.”
Norgine’s European focus has allowed the group to attract three late-stage product candidates over the last 18 months. In October 2009, it in-licensed from Santarus Inc. the European development and marketing rights to Zegerid, an immediate-release formulation of omeprazole for GI disorders. In June 2010 came, for$8 million up front, European and some other territory rights to Tranzyme Pharma Inc.’s Phase III-ready ghrelin receptor agonist for postoperative ileus, ulimorelin – a compound with a relatively well-understood mechanism with potential in areas that Norgine knows well. Most recently – and opportunistically – Norgine seized ex-Japanese rights to lipase inhibitor cetilistat from Alizyme’s administrator after the UK biotech went bankrupt. Cetilistat is on the periphery of Norgine’s traditional GI focus, but having a therapeutic area focus helps, says Stein, just like the geographic one does, “because you know what you are looking for.” That said, Norgine picked up more than European rights in the cetilistat deal; the company plans to license the drug out in the US, assuming good Phase III data from Japanese partner Takeda Pharmaceutical Co. Ltd.
Norgine’s family-owned status means it’s not really typical: a long-term investment horizon has allowed it to invest in expensive infrastructure, and now, as it reaps the rewards from that investment, it is protected from takeover. But the company’s focus on lower-risk, reprofiled or reformulated drugs is one shared by several other specialty pharma firms.
With less innovative drugs usually first in line for price cuts in Western markets, and payors’ emphasis on product differentiation, though, can these products drive sufficient growth without tapping emerging markets, a strategy that comes with its own risks and costs? Maybe so, granted they can provide better outcomes and are correctly positioned – and priced. Norgine’s largest drug, accounting for 50% of its revenues (which reached €260 million in 2009), is laxative Movicol (polyethylene glycol). It has never had a patent, and has four competitors, but sales are still growing thanks to brand awareness, a strong data package (it’s the only evidence-based treatment in the area), and workto improve compliance via new, more palatable flavors and
presentations. Thus,”we don’t project a decline [in sales] over the next five years,” says Stein.
Movicol’s growth isn’t the kind that most spec pharma investorsare after, though; nor are its margins or its low price (a twoweek treatment course costs between $5 and $15 in the UK). But even troubled ProStrakan’s trio of drugs, Abstral, Fortesta and Sancuso, chalked up a respectable 20% growth in Europe in 2010, although the US setbacks overshadowed that performance.
FDA’s eventual approval of Abstral – and indeed its growth in Europe – offers some hope to Archimedes as it awaits a green light (via the shortened 505(b)(2) process) for PecFent, another formulation of the same chemical entity whose approval is critical to the company’s future. Buchalter claims PecFent’s route of administration means “it’s highly differentiated,” offering patients who have difficulty swallowing a fast-acting alternative to IV and
patch treatments. But approval isn’t guaranteed: nasal delivery can result in dose inconsistency (along with rapid absorption), and this may be of particular concern given the drug is an opioid narcotic.
EUS A’s fortunes are likewise linked to a relatively low-technology risk bet, but one with potential, nevertheless, to prove a “companymaker” product, according to Essex Woodlands’ Vainio. And that, one step beyond a decent infrastructure, is what spec pharma needs, he argues, in order to generate wow-factor returns. “Inorder to become really valuable, they [specialty pharma] need a growth product….that puts the company on a different trajectory.”
By that he means more than 15 to 20% growth per year – the kind of “growth that can double or triple the company’s revenue base.” In other words, says Vainio, “an Adderall,” referring to the attention deficit hyperactivity disorder drug that Shire acquired via US neurology firm Richwood, which transformed that company’s fortunes. (See “Shire Shifts Upstream,” IN VIVO, March 2001.)
EUSA’s lead product Erwinase is a form of the enzyme asparaginase, used to treat acute lymphoblastic leukemia. It is derived from a different kind of bacteria than current versions of the enzyme, which come from Escherichia coli and can trigger allergic reactions. Vainio’s highly confident of a US
approval this year, given the product is already marketed in some European countries, is available in the US on a treatment-IND basis, and is a last-line treatment for children suffering from a life-threatening disease.
It’s too early to say whether Erwinase or PecFent – assuming they’re approved – will change their makers’ fortunes. Neither is likely to be an Adderall; that drug created an entirely new disease area. But there aren’t many transformational products available for specialty pharma firms, and there’s plenty of competition for those that are.
Indeed, even niche drugs to treat rare diseases – an attractive focus for several spec pharma, given that they’re apparently less vulnerable to reimbursement and pricing hurdles and require only tiny sales forces – are no longer insulated from competition as more companies, including deep-pocketed Big Pharma, enter the fray. (See “Is Europe’s HAE Market Big Enough To Sustain All The Competitors?,” “The Pink Sheet,” March 21, 2011.) Nor are they immune to price cuts; SOBI’s Rooth estimates that such cuts accounted for over a third of the company’s SEK100-million
volume loss in 2010, even though the orphan drug portfolio means “we are a bit insulated.”
And rare diseases drugs aren’t free of clinical risk either: Switzerland’s Santhera Pharmaceuticals AG, focused on ultra-orphan treatments for neuromuscular diseases, developed Catena (idebenone), an off-patent molecule, for Friedreich’s ataxia. The drug is approved in Canada, but failed to meet its Phase III primary endpoint in May 2010, scuppering the drug’s chances of approval elsewhere, and sending Santhera’s shares on a nose-dive from which they haven’t recovered. The company is currently trading well below its cash value.
Idebenone was originally licensed from Takeda, which had been marketing it for other neurology indications, but the drug was withdrawn because of efficacy concerns. Takeda has since become European partner for the drug, which Santhera plans to file in another niche indication, Leber’s hereditary optic neuropathy (LHON).
From an infrastructure perspective, an emphasis on rare diseases also presents complications. Given the small patient numbers involved, a wide
geographic presence – beyond Europe and potentially beyond the US – may be a requirement. SOBI’s Rooth believes even small and mid-sized firms can amass such capabilities but cautions, “you need the right kind of organization to handle it.” That means structuring the firm with “highly
independent” subsidiaries that can easily understand and adapt to local market circumstances. That has certainly had to be the case for SOBI thus far, since it sells entirely different products in the US and Europe, although that’s set to change as Kiobrina (recombinant human bile-salt-stimulated lipase), an enzyme replacement therapy to improve growth in pre-term infants, comes on line.
As Europe’s specialty pharma grapple with the dual challenges of building appropriate infrastructure at the same time as identifying– and attracting – company-maker products, it’s not clear precisely what the winning formula is, nor indeed whether there is one. (See Exhibit 1.) In part as a result, public markets havenot been kind; indeed, “it’s tough out there being reliant on the capital markets,” says Stein from the haven of privacy. Being protected from quarterly earnings pressure has also allowed Norgine to re-invest in earlier-stage development in order to secure an alternative product supply, just as Shire was compelled, as it grew, to shift upstream. (See “Shire: Remodeling Specialty Pharma,” IN VIVO, April 2006.)
A handful of Europe’s listed groups benefit from having a single, relatively large long-term investor, however – which can help protect them from premature takeover, and provide the long-term capital commitment required to achieve critical mass. Meda’s evolution proves how important that can be: shipping giant Stena owns a quarter of the group’s shares, and permitted the group to punch well above its weight in 2005 when it won the bidding for private, pan-European Viatris. By guaranteeing to underwrite a new share issue, Meda got the bank loan necessary to buy the group, catapulting it from being a Swedish/Nordic-focused player to a profitable pan-European firm.
And perhaps Meda’s growth-by-acquisition path offers a window on the likely future dynamics of this sector. Many of the companies Meda acquired in Europe “had not been able to produce satisfactory margins,” remarks Larnholt, describing mostly private groups with turnover in the €100 to €400 million
range. If that’s anything to go by, very few of this generation’s hopefuls will turn into predators; most will be prey.
Part of the challenge for Europe’s spec pharmas has been assembling the right management teams; “the number of people that can do it [spec pharma] is limited,” suggests Advent’s Malik. Indeed, SOBI has been seeking a new CE O since Martin Nicklasson was edged out in late 2009, ostensibly for not being sufficiently commerciallyfocused. ProStrakan didn’t bother hiring a new leader after its helmsman, ex-Shire R&D chief Wilson Totten, MD, was ousted in September 2010. But the CE Os of EUS A and Archimedes, Bryan Morton and Jeff Buchalter, respectively, have both been around the block: Morton built and ran Zeneus prior to its sale to Cephalon; Buchalter can draw on his experience running Enzon.
As such, “we haven’t given up on the specialty pharma model” in Europe, says Advent’s Malik – particularly given it’s “an area that will continue to be of interest for acquirers.” But while the likes of Advent seek their exit (and aren’t likely to be pouring a lot more money in soon), the prospect of a flock of independent, sustainable, European-based specialty pharma companies – like Shire – looks remote.
by Melanie Senior
Windhover Information Inc, an Elsevier company
InVivo: The Business and Medicine Report April 2011
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