Roche's acquisition of the anti-emetic Kytril from SmithKline Beecham will build on Roche's strength in the U.S. hospital market.

Roche will pay $830 mil. in cash and give sole U.S. rights to the CHF therapy Coreg to SmithKline Beecham in exchange for worldwide rights to Kytril.

Together, the two transactions suggest that Roche is content to put its recent efforts to rebuild a primary care market presence in the U.S. on a slower track.

The agreement, which is contingent on Federal Trade Commission approval of the Glaxo/SmithKline merger, calls for Roche to pay $1.23 bil. in cash to SmithKline for worldwide rights to Kytril (granisetron). SB will in turn pay Roche $400 mil. for exclusive rights to Coreg (carvedilol) in the U.S. and Canada. The two companies currently co-promote Coreg in the U.S.

Kytril, which is indicated for nausea associated with oncology treatment and surgery, fits well with Roche's hospital marketing strength.

Roche's current oncology portfolio centers on U.S. co-promotion agreements for Genentech's Herceptin (trastuzumab) and Rituxan/Mabthera (rituximab). Roche has exclusive marketing rights to the products in Europe.

Roche acquired Coreg (and the SB partnership) when it purchased Corange/Boehringer Mannheim in 1997. When it began co-promoting Coreg in the U.S. in 1998, Roche saw the product as part of its effort to establish a presence in the cardiovascular market along side the calcium channel blocker Posicor. Posicor, however, was withdrawn due to drug interaction problems.

Roche's next major entrant into the primary care market, the anti-obesity agent Xenical, has not yet found a firm base after strong initial sales.

Roche Head of Pharma International Operations William Burns said during an August press briefing that Xenical, Coreg, the flu treatment Tamiflu and the osteoporosis therapy ibandronate were the four products on which Roche will build its global primary care franchise. An NDA for ibandronate has not yet been filed in the U.S.

The purchase price for Kytril is about four times global sales of $320 mil. in 1999. The SB payment for Coreg appears to use a similar ratio. U.S. sales of carvedilol were $196 mil. in 1999; a $400 mil. payment would represent four times Roche's share, assuming a 50/50 split.

The acquisition fits with Roche's intent to emphasize in-licensing activities. CEO Franz Humer said during the August press briefing that Roche would seek opportunities to add products in the areas of transplant, oncology, AIDS and primary care (¹ Also see "Roche Worldwide Pharma Operations Report To Burns: U.S. & Licensing Added" - Pink Sheet, 28 August, 2000.).

SmithKline views Coreg as a key product for its plans to build a cardiovascular presence in the U.S. The product is approved for hypertension and mild-to-moderate congestive heart failure, and the company plans to submit a supplemental NDA for advanced CHF based on the COPERNICUS study (² Also see "SmithKline Beecham/Roche Coreg" - Pink Sheet, 27 March, 2000.).

SB will begin promoting Texas Biotechnology's direct thrombin inhibitor argatroban during the third quarter. The company also promotes Bayer's lipid-lowering agent Baycol.

Cardiovascular research projects for SmithKline include tranilast, in Phase III for the prevention of recurrent narrowing of coronary arteries following angioplasty, and lotrafiban for secondary prevention of thrombotic events. The orally active endothelin antagonist SB 217242 is in Phase II for congestive heart failure.

In addition to the Kytril divestiture, SmithKline announced Aug. 31 that Novartis would acquire worldwide rights to the antivirals Famvir (famciclovir) and Vectavir/Denavir (penciclovir) for $1.63 bil.

Novartis is paying a substantially higher premium (about seven times combined sales) for the two products than Roche is paying for Kytril. Famvir sales in 1999 were $214 mil., while Denavir/Vectavir sales were $20 mil.

The higher premium presumably represents aggressive growth expectations for penciclovir, which was launched in 1997 for treatment of cold sores. After a failed OTC switch attempt, SB initiated a consumer advertising campaign for the prescription product in 1999, and sales doubled for the year. Novartis said it will evaluate potential ophthalmic applications and the development of an injectable form of penciclovir.

Famvir also showed strong growth in 1999 (up 26%), but Novartis expects future growth to be in line with the overall herpes market at about 12%.

The premium price on the antivirals also likely reflects the longer patent life remaining in the U.S. (2010 for Famvir, 2008 for penciclovir) compared to Kytril (2007).

Novartis plans to detail Famvir and Denavir to primary care physicians, dermatologists and gynecologists along side the antifungal Lamisil and its hormone replacement therapies.

All three divestments were expected as part of the antitrust review of the GlaxoSmithKline merger. Glaxo markets direct competitors to both Kytril (Zofran) and Famvir (Valtrex).

Also on Aug. 31, Cantab Pharmaceuticals announced that it will reacquire rights to a prophylactic vaccine for genital herpes from Glaxo Wellcome to satisfy divestiture requirements (³ Also see "Antigenics To Stimulate Immunology Projects With Stimulon From Aquila" - Pink Sheet, 28 August, 2000.).

Glaxo will pay Cantab [L]5.75 mil. ($8.5 mil.) to be used for further development of the vaccine. Cantab and Glaxo will continue to collaborate on a therapeutic vaccine. SmithKline has a separate in-house research program focusing on a prophylactic herpes vaccine.

The transactions reflect FTC's recent position that divestiture agreements should be in place before a merger is approved via a consent agreement. Glaxo and SmithKline continue to expect the merger to close by Sept. 25 (⁴ [A#00620310012]).

The number of significant product divestments in the GlaxoSmithKline merger review suggests one factor that could slow down the pace of consolidation in the pharmaceutical sector, as there are few potential combinations that would not create product overlaps in several categories.

However, the size of the payments to SmithKline (about $2.5 bil. in cash plus U.S. Coreg rights) suggests that it is possible to obtain significant compensation when an asset sale is required.

The one-time payments from the transaction are equivalent to two years' worth of the $1.25 bil. in operational synergies GlaxoSmithKline expects to realize in the merger.

Roche Kytril Acquisition From SmithKline Strengthens Hospital Focus In U.S.

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