UCB’s New Strategy Takes SHAPE As GSK Buys Out Emerging Markets

For about $670 million, GSK acquires UCB drugs and infrastructure in several dozen non-BRIC markets.

In a tale of two pharmas, Belgium's UCB continues to narrow its focus, this time by selling off mature drugs in non-primary emerging markets to GlaxoSmithKline, which has signaled an interest in increasing its foothold in such countries via a recent string of transactions.

In the deal announced Jan. 23, the Anglo/U.S. giant will pay UCB €515 million ($670 million) in cash in exchange for rights to anti-epileptic Keppra (levetiracetam) and allergy drugs Zyrtec (cetirizine) and Xyzal (levocetirizine) in specified markets within Africa, the Middle East, the Asia Pacific region and Latin America.

UCB, which detailed a cost-cutting and re-emphasis strategy called SHAPE last August, has been repositioning itself as a specialty pharma focused on central nervous system and immunology therapies (¹ (Also see "UCB Trims Down With SHAPE Program" - Pink Sheet, 28 Aug, 2008.)). The launches of generic competitors to Keppra and Zyrtec spurred the restructuring, which resulted in 2,000 job cuts at UCB.

In an interview, Antje Witte, UCB's VP of corporate communications and investor relations, called the deal "a real strategic fit from both sides" and said her firm is pleased with the price it received from GSK. UCB estimates the sold-off assets brought in €120 million ($156 million) last year, between 3 percent and 4 percent of its expected 2008 revenue.

"This gives us a sales multiple of about four, which is attractive, and ... this cash is going to be invested into our core areas to bring new drugs to patients who suffer from central nervous system and immunology indications," Witte said.

In a Jan. 23 note, analyst Annie Cheng of Bryan, Garnier & Co. agreed that UCB got a good deal. The sales multiple could be attributed to a roughly 20 percent sales growth rate in the Middle East/Northern Africa region, she wrote.

UCB is not giving up on emerging markets, however, even though such markets generally offer poor prospects for higher-priced specialty drugs. The company retains its rights and assets in the so-called BRIC nations - Brazil, Russia, India and China - along with Mexico, Canada, South Korea and Australia.

Likewise, the deal does not exchange rights to UCB's newer products, Cimzia (certolizumab pegol), marketed in the U.S. and Switzerland for Crohn's disease; Vimpat (lacosamide), launched in the EU and approved and about to launch in the U.S. for epilepsy; and the troubled Neupro patch (rotigotine), which UCB hopes to relaunch this year (² (Also see "UCB’s Neupro Manufacturing Problems Hold Up Approval For Advanced Parkinson’s Disease" - Pink Sheet, 19 Dec, 2008.)).

According to Cheng, the deal increases UCB's business risk by making it more dependent on its Cimzia and Vimpat franchises. But it strengthens UCB's balance sheet, which is burdened by about $2.43 billion in net debt, she added.

Differing perspectives on emerging markets

Moving its newer drugs into emerging markets is a longer-term goal for UCB, Witte said, but with a different, smaller infrastructure.

GSK, however, is focused on playing broadly in emerging markets now. In addition to the UCB deal, which is expected to close in March, GSK has inked several transactions to increase its portfolio outside the U.S. and EU. In a pair of fourth-quarter 2008 deals, for instance, GSK bought maturing businesses from Bristol-Myers Squibb in Egypt and Pakistan for a combined $246.5 million (³ [See Deal]).

Likewise, last July, GSK licensed from Onco Therapies - a joint venture of Africa's Aspen Pharmacare and India's Strides Arcolab - its portfolio and pipeline in 95 emerging markets outside of India and sub-Saharan Africa (⁴ [See Deal]).

Although GSK executives were unavailable to comment, the company told "The Pink Sheet" DAILY the acquisition "is consistent with and advances GSK's strategy to accelerate sales growth in emerging markets." In recent investor forums, GSK CEO Andrew Witty has spoken of de-risking and focusing on established products that can produce a stable earnings stream.

In addition to products, the deal also brings to GSK about 490 UCB employees that it will integrate into its operations. "There will inevitably be some areas of business overlap and, regrettably, where this is the case, redundancies may occur," GSK said.

UCB's second deal this month

This is the second transaction this month that enables UCB to give greater focus to its CNS/immunology businesses. On Jan. 9, it optioned five preclinical oncology programs to Germany's Wilex, in a deal that gives UCB a buyback option for each compound upon proof of concept (⁵ (Also see "UCB Inks Buyback-Option Deal With Wilex For Oncology Lineup" - Pink Sheet, 9 Jan, 2009.)).

"We decided you're only good, you're only strong, when you're focused," Witte said.

Neupro was pulled from U.S. shelves last April because of a manufacturing problem that can cause the drug to crystallize, reducing its efficacy. Witte said the problem has been fixed and UCB hopes to relaunch Neupro in the U.S. this year and get EU regulators to allow the firm to restart marketing efforts. EU stock was reserved for existing patients after the problem was discovered.

UCB also hopes it soon will get FDA approval for Neupro in advanced Parkinson's disease and moderate to severe restless legs syndrome. FDA approved the patch for early Parkinson's in 2007.

Vimpat won U.S. approval last October and should launch soon, Witte said. In Europe, it has launched in the U.K., Germany, Austria and Scandinavia "with more countries to follow each week," she added.

Cimzia, a tumor necrosis factor inhibitor, won U.S. approval for Crohn's disease last year, and also is marketed in Switzerland for that indication. UCB also aims to get the drug approved in the U.S. and EU for rheumatoid arthritis. FDA sent the company a complete response letter Jan. 2 seeking updated safety data for that application (⁶ (Also see "Cimzia Rheumatoid Arthritis Approval Held Up By Safety Request" - Pink Sheet, 5 Jan, 2009.)).

-Joseph Haas ([email protected])