Noven Pharmaceuticals is to acquire fellow US drugmaker JDS Pharmaceuticals for $125 million, but the former’s share price fell due to the “significant’ one-time charge it will take.
As well as the $125 million in cash, Noven, which specialises in transdermal drug delivery technologies and treatments, will also assume $10 million in net liabilities to get hold of JDS, a privately-held specialty pharmaceutical company that “currently markets two branded prescription psychiatry products through a targeted sales force and is advancing a significant pipeline of high-potential products in psychiatry and women's health”.
JDS sells Lithobid (lithium carbonate) for bipolar disorder and Pexeva (paroxetine mesylate) for depression, panic disorder and obsessive-compulsive disorder, which together are expected to have sales in the second half of this year of $14 million. Its pipeline, according to Noven, also contains “high-margin, high-potential psychiatry product”, notably Stavzor (valproic acid) which has been filed with the US Food and Drug Administration as a treatment for bipolar disorder, migraines and epilepsy and could be launched next year. Another treatment for bipolar disorder, Lithium QD, is in Phase III trials. Noven said that the psychiatry products described above could achieve aggregate annual US sales in 2012 in excess of $150 million.
Mesafem shows promise
The companies also have high hopes for Mesafem (low-dose paroxetine mesylate), which JDS has been developing as a treatment for vasomotor symptoms associated with menopause, including hot flushes and night sweats (VMS). Touted as a potential alternative to hormone therapy, it is expected to begin Phase III clinical trials in the first half of 2008 and Noven said that the VMS market in the USA could exceed $3 billion annually, and Mesafem’s share of that could reach $400 million in 2012.
Getting these products to market will be costly and Noven will increase its R&D spend by up to $30 million for the 2007-2009 and once the deal closes, it will record “a significant one-time charge for purchased in-process R&D expenses.” The actual amount is still under analysis, “but it is expected to significantly exceed 50% of the transaction consideration,” Noven added, a comment which made investors splutter, and the firm’s shares ended the day down 9.5% at $21.30.
The response from analysts to the deal were mixed. Ken Trbovich at RBC Capital Markets analyst said in a note that the acquisition looks like a good strategic move “with very good risk/reward profile" and added that the price seems "very reasonable in light of pipeline potential”. However Deutsche Bank analyst David Steinberg differed, saying the deal was expensive given that the revenue stream for Lithobid is declining and Pexeva's is undifferentiated. Mr Steinberg noted that Noven may well be getting a sales force but the deal will lower Noven's earnings for two to four years, and Mesafem is unlikely to be launched before 2011.
