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Executive Summary

MARSAM AND GENEVA GENERICS ENTER JOINT OPERATING ARRANGEMENT under an agreement in principle announced April 16. Upon the signing of a definitive 10-year agreement, Marsam Pharmaceuticals will develop and produce generic injectable products, while Ciba-Geigy subsidiary Geneva will focus on unit-dose solid generic drugs. Coopers & Lybrand was financial advisor for Marsam's proposed deal with Ciba-Geigy. Marsam would not predict when a definitive agreement would be reached. Products developed by both companies will be marketed by Geneva under the Geneva-Marsam brandname with profits shared by both firms. Geneva's current sales force stands at approximately 65. The company plans to create a hospital/institutional sales force initially numbering 18 and expected to grow to about 40 over the next several years. Ciba-Geigy entered the U.S. generic market in mid-1979 with the $8.5 mil. cash acquisition of S.J. Tutag (renamed Geneva Generics), which is based in Broomfield, Colorado. The Tutag deal offered Ciba-Geigy an established generic line. Marsam only began marketing products in January 1989, but the firm had about 29 ANDAs pending as of last September, along with about 18 products in development. As part of the arrangement, Ciba-Geigy will pay $10 mil. for a 10% equity position in Marsam. The Summit, N.J.-based generic manufacturer has nearly 5 mil. shares of common stock outstanding. Prior to the announcement, Marsam was trading on the NASDAQ at around 21. The stock closed Friday, April 20 at 19-3/4. The agreement with Geneva Generics will replace one signed in 1985 with Squibb before that company's July 1989 merger with Bristol-Myers. Covering injectable generic drugs, the Squibb agreement was slated to expire at the end of 1991. Some final details on dissolution of the agreement are still pending. Squibb currently holds an 8.1% equity stake in Marsam via warrants to purchase up to 350,000 shares of Marsam. Those warrants are exercisable until Jan. 31, 1991. In September 1989, Marsam said it was in preliminary discussions with other companies about developing a joint operating arrangement similar to the Squibb Mark-Marsam deal. Besides Squibb, Marsam's other major corporate holder is Agvar Chemicals, which controlled more than 10% of the company (as of July 5) with ownership of 740,474 shares of common. That same month, Marsam moved to increase its independence from the newly created Bristol-Myers Squibb when it earmarked $7-$10 mil. from $14.3 mil. raised in a public stock offering to build a new production facility and develop non-penicillin, non-cephalosporin products ("The Pink Sheet" Sept. 18, T&G-3). The plant is expected to be up and running fully by 1992, Marsam forecasts. At the time of the stock offering, all but one of the non-penicillin, non-cephalosporin products marketed by Marsam were being manufactured by Squibb. Today, Marsam markets 17 products, 11 of which are being manufactured by Squibb and six by Marsam. Marsam reported 1989 revenues of nearly $6 mil. and a net loss of $503,900.

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