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Euro Ventures - Friday, November 6, 2009

Biovitrum AB and Swedish Orphan Form New Niche Specialty Pharmaceutical Company

Nordic biotechnology companies Biovitrum AB and Swedish Orphan announced plans to merge. The newly formed company will be Swedish Orphan Biovitrum (SO-Bi) focused, to design and manufacture specialty pharmaceuticals for rare diseases. Biovitrum AB has agreed to pay kr3.5B ($500M) to initiate a guaranteed rights issue of financing. The deal will directly increase earnings per share for Biovitrum's shareholders.

Sharing a similar vision and philosophy each company brings strong core competencies. Biovitrum AB brings to the deal its manufacturing infrastructure, a few late stage clinical development products, and several specialty products available on the market. It also contributes its well known hemophilia franchise. Complementing this offer Swedish Orphan makes available its business development capabilities particularly its strength in areas of distribution, policy management and marketing. This is in addition to its large intellectual property portfolio of approximately 50 orphan and specialty products.

There is projected growth potential for Swedish Orphan Biovitrum products. The combined entity is expected to have approximately 60 specialty products ready for the market as well as "two phase III and five phase II" products in development. This could potentially generate tremendous sales in both the short and long terms. Current estimates project kr2B ($287M) in sales this year with an EBITDA margin of about 15 percent, and kr5B ($718M) in sales with an EBIT margin exceeding 30 percent by 2015. In contrast, newly realized operating costs are to be realized fully by 2011 and will tally close to kr100M ($14M).

The overall value attractors in this deal are Swedish Orphan's market reach and Biovitrum's established revenue, creating a leading company in the rare disease market. While synergies between the two companies will create a seemingly perfect fit, challenges ahead will be how quickly SO-Bi can scale revenue to adequately manage increased expenditures (which are projected relatively low).

By Hanif O'Neil