Gedeon Richter announced today that it has acquired Preglem, a PE-backed Swiss development company that specialises in women’s health. The up-front cost of the deal is CHF 150m (€114m), but there is the potential for additional milestone payments of up to CHF 295m (€223m). In addition, Richter is committed to fund Preglem through to profitability, which it believes will cost it a further CHF 100m between now and 2013 .
Preglem has six disclosed compounds in its pipeline but by far the most advanced is Esmya, a treatment for uterine fibroids that has recently completed phase III clinical trials and will be filed in Europe later this year. A partner is being sought for the US and at least one additional trial will be required there, so US launch is unlikely for several years. Esmya was in-licensed by Preglem from HRA, a private French company, and is the same compound as EllaOne, HRA’s morning-after pill (recently launched in the US by HRA’s licensee, Watson). It is an oral therapy and is already known to have a good side-effect profile, so it should prove an attractive alternative to surgery.
According to Richter, all the milestone payments that it has agreed with Preglem relate to Esmya’s approval, so we expect a big pay-out in 2012 and then a smaller one in 2014, assuming that Esmya is not only approved for its first indication of the treatment of symptomatic uterine fibroids eligible for surgery but also for a second one (for which a phase III trial is now running) in chronic therapy for uterine fibroids.
The number of women suffering from uterine fibroids is large (an estimated 44m across Europe and the US, with around 4m receiving treatment) and Richter hopes that Esmya can achieve peak sales of around €200m pa within three years of launch. The plan is for Richter to market the drug using its existing sales force in CEE and for Preglem (which will be run as a stand-alone company within the Richter group) to build up a network of reps in the five largest markets in Europe. Distributors or agents will be used elsewhere. These reps may also promote some of Richter’s generic products in order to fill out their portfolio.
In our view, this deal marks a meaningful step along the road to Richter becoming a speciality pharma rather than a generics company, but it is a single step nonetheless, given that Preglem has only one product that is close to market. After completing this deal, Richter will still have plenty of cash in the bank and it would be well advised to consider spending some of it on a portfolio of on-market products in western Europe, the revenues from which would help to balance out the costs associated with Preglem. And such a counterweight is necessary, because Preglem is going to be very dilutive in the near term. We estimate that in 2012, when its costs peak as a result of the launch of Esmya, Preglem will knock more than 20% off Richter’s previously-expected EPS and that it will not become earnings accretive until 2014, when it starts to make profits. From the perspective of the company’s shareholders, who were perhaps hoping for a deal that involved revenues as well as costs, this is a long time to wait.