The growth equity arm of Novo A/S has clocked up its first major pharmaceutical investment, a $700 million buyout of generic antibiotics developer and manufacturer Xellia Pharmaceuticals AS, under a new investment strategy it formulated more than a year ago.
The deal exemplifies Hellerup, Denmark-based Novo's intentions to build large-scale, long-term positions in mature, low-risk companies. That represents a shift from its original strategy, involving earlier-stage companies approaching commercialization. "Originally, we wanted to do exactly as the word suggests," Ulrik Spork, managing partner at Novo Growth Equity, told BioWorld Today.
Investments in that category include specialty pharma firms Archimedes Pharma Ltd., of Reading, UK, and Orexo AB, of Uppsala, Sweden, as well as Lyngby, Denmark-based biotech Symphogen A/S and medical technology firm Aerocrine AB, of Solna, Sweden. However, it has since decided to pursue "bigger bites." Its first such deal was the €560 million (US$723 million) acquisition last year of a 25.66 percent stake in the food biotechnology firm Chr. Hansen A/S, of Hørsholm, Denmark.
The engine behind that investment activity is Bagsvaerd, Denmark-based Novo Nordisk A/S, the global leader in diabetes therapies, in which Novo has a 25 percent stake. "Novo Nordisk is 75 percent of the balance sheet," Spork said. Novo has a total asset base of about $30 billion and is the regular recipient of large amounts of cash, from both dividends and share buybacks.
Its other investment arms, Novo Ventures and Novo Seeds, do not have the scale to consume the level of cash involved. "Putting three times more money into venture capital didn't make much financial sense," Spork said.
Xellia, which is currently based in Oslo, Norway, but which will shortly relocate its headquarters to Copenhagen, fit the bill, however. "We were looking for companies that had a good solid position in market niches, that were technology driven and global in their mindset," he said. Xellia specializes in the production of difficult-to-manufacture antibiotics, including vancomycin and the polymyxin olistimethate sodium.
The company was formed in 2008 through a management buyout of the active pharmaceutical ingredients business of Alpharma Inc. (now part of New York-based Pfizer Inc.). London-based investment firm 3i Group plc supported the deal, which was then valued at $395 million. 3i and associated funds now will receive £260 million (US$395 million), a multiple of 2.3 times their initial outlay of £113 million.
During the past five years, the company has added a product development capability, including a fill-finish plant. It has completed 15 product filings in 2012 and is on track to file another 17 this year. "They've come a long way under the ownership of 3i. We think that there is further growth to be achieved, more value to be created," Spork said. Xellia generated revenues of $220 million in 2012.
Novo is unlikely to exit as quickly as Xellia's former owners. As it is owned by the Novo Nordisk Foundation, it is not tied to short-term goals. "Our ambitions are long-term," Spork said. "We don't have to get in and out in a five-, seven- or 10-year time horizon." Maintaining an asset over a long life cycle enables long-term investments in manufacturing – and Xellia's expertise in fermentation is a good fit for other parts of the Novo portfolio. "We create value by holding, not exiting," he said.
The Xellia purchase comes in what has been a busy week for low-risk, big-ticket deals, following Actavis Inc.'s proposed $8.5 billion stock-based acquisition of Dublin, Ireland-based Warner Chilcott plc and Elan Corp. plc's smaller deals in Central Europe and the Middle East. (See BioWorld Today, May 21, 2013.)
Elan has also taken on $800 million in long-term debt to fund further asset purchases. Novo Growth Equity has no such ambition to do multiple deals in a short time frame, however. "It would be a stretch for us to do two of them a year," Spork said.