DSM To Spend $146 Mil. On Gist-Brocades Antibiotics, R&D After Merger

DSM NV will invest about $146 mil. in Gist-Brocades' antibiotics product and R&D operations following a proposed merger between the two firms.

Gist-Brocades has been in clean-up mode for the past two years as it seeks to achieve full compliance with FDA's good manufacturing practices requirements. The process is continuing: Gist-Brocades Italy "is initiating a recall of any remaining amikacin sulphate bulk" from the U.S. "due to discrepancies between the AADA and the process that was utilized to produce material currently" in the U.S., the company said.

"There are no quality or safety issues associated with the bulk material," Gist said. "It is anticipated that there is less than 130 kg involved. No other bulk products from Gist-Brocades Italy or any other Gist-Brocades facility are involved." The recall could have a ripple effect on finished-dose manufacturers who used the raw material.

Rep. Barton (R-Tex.) sought documentation from a May 1996 follow-up inspection as part of his investigation of foreign bulk suppliers ("The Pink Sheet" March 2, 1997, T&G-11). At least one firm involved, Hoechst Marion Roussel's Biochemica Opos subsidiary, landed on FDA's application integrity policy. Gist-Brocades was not among firms on the list as of Dec. 8.

Gist received a warning letter from FDA in January 1997, citing GMP compliance problems. In the letter, FDA noted that Gist has gone to "considerable effort and expense" to respond to the May 1996 inspection, but pushed for "a more global approach to achieving comprehensive cGMP compliance."

The $1.32 bil. merger, announced Feb. 23, will give DSM NV the leading position in the antibiotic supply market. Gist is "the world's number one supplier of antibiotics," the companies noted. In 1997, Gist sales grew 10% to about $1.1 bil., not all of which were from pharmaceuticals. DSM's fine chemical sales were about $750 mil. of its 1997 total sales of $6 bil.

DSM already works with Gist in the field through the 50-50 joint venture Chemfer. The joint venture, incorporated in 1994, produces cephalosporins and erythromycins using Gist-Brocades' fermentation technology and DSM Andeno's fine chemicals.

Gist-Brocades' Industrial Pharmaceutical Products Division produces industrial penicillins and erythromycins as well as penicillin derivatives. IPPD, which has 12 production sites worldwide, also supplies antibiotic intermediates such as 6-APA and 7-ADCA and active bulk antibiotics including semi-synthetic penicillins and cephalosporins.

In anticipation of the patent expiration of lovastatin (Merck's Mevacor), the company began construction of a fermentation and refining plant in 1996 through a joint venture in Mexico. The firm is developing a generics platform, particularly in the statins field, through its Corporate New Business Development sector. Gist-Brocades also holds a majority stake in Andaris Ltd., a U.K.-based firm in Phase III trials for Quantison, an albumin microcapsule for cardiac imaging.

DSM's antibiotics operation -- Spain-based DSM Deretil -- produces antibiotics intermediates at five facilities. The business has leading positions in D-phenylglycine, D-dihydrophenylglycine and D-p-hydroxyphenylglycine production, according to DSM.

The firm's DSM Andeno business develops and produces advanced intermediates and actives, with an emphasis in the cardiovascular area. In 1996, it acquired Bristol-Myers Squibb's Regensburg, Germany production facilities.

In 1995, DSM Andeno supplied intermediates for nine of the top 20 selling pharmaceuticals, six of which fall in the hypertension/cholesterol control category: Merck's Vasotec (enalapril) and Zocor (simvastatin), Bayer's Adalat (nifedipine), Bristol's Capoten (captopril), Hoechst Marion Roussel's Cardizem (diltiazem) and Zeneca's Zestril (lisinopril).

The DSM Chemie Linz chemical intermediates division supplies hydroxy-beta-lactone to Roche for use as an intermediate for the pending obesity treatment Xenical (orlistat).

Under the preliminary terms of the merger, DSM will offer one DSM share plus NLG 32.50 in cash (about $15.85) for six Gist-Brocades shares. The deal represents a 30% premium over the average closing price of the stock over the past month. The companies expect to find $24.4 mil. in synergies from the merger. Gist-Brocades will operate under the name DSM Gist-Brocades.