Novartis' acquisition of Eon Labs and the German generics company Hexal will significantly increase the size and capabilities of the Sandoz generics unit, with an eye toward playing a larger role in "authorized" generics and follow-on biologics.

Novartis acquired Eon and Hexal for €5.65 bil. (approximately $7.47 bil.) and will integrate them into Sandoz.

The deal, announced Feb. 21, will make Sandoz the global leader in generics sales, with combined 2004 pro forma sales of $5.1 bil., Novartis said.

The acquisition is expected to close in the second half of 2005. Cost saving are expected to reach $200 mil. annually within three years.

The combined companies will have just above 20,000 employees, with 7,000 coming from Hexal, 500 from Eon and 13,000 from Sandoz.

Eon CEO Bernhard Hampl will head Sandoz' U.S. operations after the deal closes (see ¹ Also see "Eon CEO Hampl Will Head Sandoz’ U.S. Operations Following Acquisition" - Pink Sheet, 22 February, 2005.).

The acquisitions position Sandoz as the global leader in generics while also allowing the company to become a "preferred partner" for "authorized" generics and to play a lead role in the development of follow-on biologics, Novartis said.

"Authorized generics will certainly be a continued trend over the next couple of years and we believe that we can also play in this field," the company said during a conference call.

"We would expect that through the combined strength of the companies we would be a preferred partner for authorized generics, especially in the future."

Sandoz already has experience in the authorized generics arena: it currently markets an authorized generic of Johnson & Johnson's Duragesic (fentanyl transdermal) (² Also see "Mylan Encounters "Irrational Pricing" In Duragesic Generics Market" - Pink Sheet, 3 February, 2005.).

Novartis is also positioning Sandoz to take a lead role in the development of follow-on biologics.

FDA has deferred a decision on Sandoz' NDA for Omnitrope (somatropin), a follow-on version of Pfizer's human growth hormone Genotropin , while it resolves scientific issues (³ Also see "FDA Makes It Official: Action On Human Growth Hormone Will Wait" - Pink Sheet, 2 September, 2004.).

"In the area of biopharmaceuticals we expect that eventually there will be a substantial business and substantial margin [with] substantial barriers of entry," Novartis CEO Daniel Vasella said. "So it will not be as easy to go into this market and have as many competitors, but we certainly want to be a leader in this area."

"In many of these biologicals the exact structure is either unknown or cannot be reproduced exactly…So you have to repeat some of the clinical trials and many companies are simply not able to do that"

"It requires know-how and there obviously we have the advantage of being able to transfer some know-how from our innovator business to the generics business," Novartis said.

Novartis execs also are pointing to the negotiating leverage that comes with having large branded and generic businesses across a broad product portfolio.

"Today our brand and pharmaceutical business and generic business work together with large customers," the company said. "To have a combined offering does bring certain advantages, which we are increasingly valuing, and gives us an outstanding access which sometimes, if one unit goes alone, we do not have."

"The fact that we can in the prescription business offer a joint portfolio gives us advantages in the negotiation….The credibility and the case one can build for innovative medicines, which bring better therapeutic value to patients if one combines them with generics, has given us a literally invaluable access advantage."

- Brian Marson

Novartis Boosts Sandoz Generic Business With Acquisition Of Eon, Hexal

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