Three years after its transformative $1bn deal to reacquire its psoriasis treatments from Warner Chilcott, Leo Pharma is again on the hunt for acquisitions. The private and hitherto publicity-shy Danish biotechnology group has in recent months openly come out about plans for future growth that include adding new therapy areas to its existing line of treatments and an expansion into new geographies.
Speaking to EP Vantage at BIO 2012, Kristian Lykke Fick, corporate vice-president of business development, said following last year’s decision to change the R&D focus to concentrate solely on dermatology Leo was now looking to scale up. “We are searching for partners and opportunities to strengthen that position.”
The group has already announced a licensing deal with Virobay for a preclinical oral treatment for psoriasis. While the sums were modest, a $7m up-front fee with heavily back-ended milestones of up to $300m, the tie-up is the start of what Mr Fick sees as a series of deals, with the ultimate goal of “two or three significant deals” before the end of the year.
Dermatology, traditionally seen as one of the sleepy backwaters of the industry, has over the past few years generated growing interest. In 2011 Valeant Pharmaceuticals International acquired four dermatology companies for a combined $1.2bn with Michael Pearson, its chairman and chief executive, saying the space had “an attractive risk/reward profile" (Valeant must deliver on growth promises as deals continue to flow, July 18, 2011). This is borne out by forecasts from EvaluatePharma showing that the dermatology sector is set to grow by 4% over the next six years to $18.9bn.
For Leo the renewed focus on dermatology was also sparked by the deal with Warner Chilcott that not only gave the group its products back, but also facilitated its longed-for break into the US, the world’s biggest pharma market (Leo and Warner strike mutually beneficial deal, September 24, 2009). This also gave focus to the group’s previously disparate portfolio.
At the same time Leo acquired the Australian company Peplin, which has recently resulted in the Danish group gaining a valuable US product approval in the shape of Picato, a topical gel treatment for actinic keratoses, the lesions that are the precursors to skin cancer.
“We spent close to $1.3bn in a month, so from a Leo perspective that was a big change and the catalyst for that was an expansion strategy. We needed to go from having a focus on Europe and Canada to tap into global growth,” says Mr Fick.
Already surprisingly large, Leo is Denmark’s third largest pharmaceutical group behind Lundbeck and Novo Nordisk, employing close to 5,000 employees across 61 countries. Last year, it reported revenues of DKr8.02bn ($1.37bn).
The group is also highly cash generative thanks to profit margins that constantly hover around the 40% mark. While the group is under no obligation to report detailed financial results, Mr Fick says it has more than enough firepower to do significant deals, with cash reserves currently running at above €2bn.
“There is no magic number for deal size,” he says. “We have the cash to do big or small deals, but any opportunity within prescription dermatology with potential sales above €75m has our interest.”
Expanding the business
As for targets, products or companies to expand its current portfolio beyond psoriasis, actinic keratoses, and eczema into new indications that could include acne, rosacea vitiligo and skin cancer are the focus.
Also on the cards is growth into new geographical markets, with several focus countries earmarked including, China, Brazil, Russia, Korea, Japan and deeper penetration of the US. Leo is also considering acquiring diagnostics, which could help clinical development programmes or have commercialisation potential in their own right.
Leo’s focus on prescription drugs, rather than the suites of OTC products that have been snapped up by the likes of Valeant, mean that it should be able to achieve its aims without running up against too much competition.
“We are not into the aesthetic field; we are more focused on R&D. Our objective is to find and drive innovation in dermatology rather than picking up OTC brands to expand our top line,” Mr Fick says.
Deals with a difference
With that end Leo is looking at early-stage deals and research collaborations that could be signed with biotech as well as big phama. While this might sound strange, given that dermatology is not a priority among many originators Mr Fick believes there is a rich untapped seam here.
“Indirectly there are quite a few companies working on this. If they touch on anti-inflammatory research they certainly have a dermatology arm, or you can say there is a potential dermal application. What we are hoping is that some of these companies will find it interesting to go into the dermatology field rather than pursuing the usual suspects of RA and MS.”
He also believes that while the returns in RA and MS may be greater, so is the competition, a factor that could lead companies to look at a dual development strategy for their compounds. “Dermal applications can be the fastest route to commercialisation too,” he argues.
So with plenty of money in the bank and a clearly stated aim of doing deals, the next few years could see Leo, currently the fourth biggest company in the derma space, move up the rankings.