Norway’s Xellia Pharma Acquired By Novo A/S In $700 Million Buyout

3i sells Nordic antibacterial manufacturer Xellia Pharmaceuticals, which has plans to develop novel antibiotics, new formulations and new bulk generics.

Danish investment company Novo A/S has agreed to buy the Oslo, Norway-based anti-infective generics manufacturing company Xellia Pharmaceuticals A/S for $700 million, and aims to accelerate its development of generic and novel anti-infectives; many of them niche products or requiring specialized manufacturing.

Novo will add Xellia to its life sciences portfolio that includes the world leading diabetes company Novo Nordisk AS, the enzymes company Novozymes AS, and Chr. Hansen Holding AS, a manufacturer of vitamins and food supplements, all headquartered in Denmark, Novo announced May 21. Novo in turn is owned by the Novo Nordisk Foundation, which supports academic research with a broad disbursement of grants, and is funded by dividends from the companies.

Xellia was acquired from 3i, the U.K.-based private equity company, and minority shareholders, with 3i claiming it made a 2.3-fold return on its investment. 3i and company management originally bought the company from Alpharma LLC in 2008 for $208 million [See Deal]. Since then, Xellia has invested more than $100 million in R&D and manufacturing capacity, including a new fill-finish plant in Copenhagen.

3i has been under pressure from its own investors to return cash. The Xellia transaction is 3i’s second this month in the life sciences arena. Earlier in May, it cut its stake in contract research organization by 10% during the CRO’s IPO on the New York Stock Exchange, receiving proceeds of $67 million (Also see "Quintiles IPO Points To Increased Pharma Productivity And Outsourcing" - Pink Sheet, 6 May, 2013.). 3i and funds managed by it still hold a 12.3% stake in Quintiles, valued at $633 million.

Fitting Novo’s Investment Criteria

“We were looking to make substantial investments in established companies with a solid cash flow, in an area where we believe we can add value as a long-term owner,” said Novo Managing Partner Ulrik Spork in a May 21 interview. “Xellia fits those criteria, although we were somewhat surprised to find it on our doorstep,” he added.

Regaining Scandinavian ownership of the assets was one of the side-benefits of the deal. Xellia’s headquarters will be moved to Denmark, where the company already has a manufacturing facility and where Novo’s other portfolio companies are based.

All four companies use fermentation technologies and operate in regulated industries, so there may be synergies in swapping insights in manufacturing or regulatory affairs, but they all have their own boards and operate as standalone companies.

Xellia traces its history back to the Norwegian company Apothekernes Laboratorium, which was set up in 1903, and merged with the Danish company Dumex A/S and U.S-based AL Laboratories Inc. in 1994 to form Alpharma. The active pharmaceutical ingredient (API) business of Alpharma was acquired by its management and 3i in February 2008, while the remainder of Alpharma merged with the U.S. company, King Pharmaceuticals Inc., now part of Pfizer Inc., in November 2008 (Also see "King’s Dogged Pursuit of Alpharma Comes Up Aces" - Pink Sheet, 24 Nov, 2008.).

“There are quite substantial barriers to entering the market for manufacturing anti-infectives like vancomycin and colistimethate sodium, where Xellia has a market-leading position,” Spork noted. “There are few competitors and substantial economies of scale, and the market is separate from the mainstream generics market, which is dominated by large global players.”

As widely noted by industry commentators, there also are few new anti-infectives in development by big pharma, so Xellia’s products are expected to be in demand for some time to come, Spork said. The market demand for vancomycin is continuing to increase, Spork noted.

Xellia’s anti-infectives are sold to other pharmaceutical companies for marketing, after being manufactured using fermentation-based biological processes in facilities in Denmark, Norway, Hungary and China. But its management sees significant opportunities in moving up the value chain.

The company is developing new finished-dose formulations of generic anti-infectives, such as ready-to-use bags for intravenous use and inhalation formulations, said Xellia CEO Carl-Ake Carlsson. Xellia also expects to develop generic versions of several branded anti-infectives launched 10 to 15 years ago after patent protection expires. Longer-term, it has identified potential new antibiotics in its fermentation broths, and is looking to exploit those findings.

“We are also open to collaborations on developing new technologies and possible bolt-on acquisitions, and also developing marketing relationships, although we intend to remain a business-to-business company,” Carlsson said.