Novartis to buy Ebewe's generic business

Novartis to buy Ebewe's generic business

Novartis, which sells generic drugs through its Sandoz subsidiary, also has a growing portfolio of cancer drugs that are still protected by patents. The deal highlights a recent trend in the pharmaceutical industry of makers of branded drugs diversifying into health-care areas outside the traditional pharmaceutical business.

The Switzerland-based company will buy the specialty-generics business of closely held Austrian drug maker Ebewe Pharma. With the acquisition, Novartis will now be able to sell several standard chemotherapies. Ebewe's smaller neurological-products business is excluded from the deal.

Ebewe Pharma was a subsidiary of Germany-based BASF SE until 2001, when a group of investors bought it in a management buyout. Ebewe had total sales of €188 million in 2008.

Novartis will finance the deal from existing cash and doesn't expect a change to its credit rating. The transaction is subject to regulatory approval and will probably close this year, Novartis said.

Ebewe Pharma's products are essential components of standard-of-care guidelines for treating many types of cancers, Novartis said.

The acquisition "will further strengthen our pipeline with many planned near-term launches, " said Novartis Chairman and Chief Executive Daniel Vasella.

The deal underlines the drug maker's strategy of offering its customers medicines ranging from inexpensive generics, when available, to branded products. "It is the same customers -- hospitals -- that are buying the branded drugs and the generics," Mr. Vasella said in a telephone interview.

The use of less-expensive generics for standard treatments helps preserve cash that can be redeployed to be used on treatment with newer, more effective drugs, which are also more expensive, Mr. Vasella said.

The global market for generic cancer drugs was valued at about $3.5 billion in 2008. It will probably grow significantly in coming years, given that drugs with combined sales of $9 billion annually will lose patent protection by 2015.

Analysts welcomed the acquisition as a complementary fit to Novartis's existing businesses and said the price, though high, was fair. Still, some warned that drug companies' appetite for generic drugs will dent their profitability.

The Novartis deal follows GlaxoSmithKline PLC's recent acquisition of a 16% stake in African generic drug maker Aspen Pharmacare Holdings Ltd. and Sanofi-Aventis SA's takeover of Czech generics company Zentiva.

"Although the diversification into generic drugs reduces the risk inherent in the overall health-care business away from pharmaceuticals, boosts growing sales in emerging markets and potentially capitalizes on the patent cliff in 2011-12, it tends to affect adversely an innovative drug maker's profitability and cash flow generation," said Britta Holt, an analyst for the pharmaceutical sector at rating agency Fitch Ratings Inc.