Sinclair on radar following interest

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The normally low key Sinclair Pharma is now firmly on the radar screens of market observers thanks to its surprise announcement yesterday that it is in talks with one party about a strategic "opportunity", and has received a preliminary takeover approach from another mystery suitor. News of the corporate action pushed shares in the UK company 30% higher yesterday to 70p.

But the wording of the statement indicates that rather than just a complete takeover of the company, which focuses on topical applications for the skin, mouth and eyes, Sinclair might be considering two different courses of action, which could include a large licensing deal for at least one of its products.

Given the UK group’s existing relationship with OraPharma, a division of Johnson & Johnson, over its gingivitis treatment Decapinol, the US group would appear to be the most likely candidate in terms of a strategic deal.

In July 2006 the J&J subsidiary signed a deal to license the prescription rights to Decapinol as a mouthwash. Any extension on the current deal would be for the purpose of getting its hands on the follow-on Decapinol products that Sinclair currently has under development.

Alongside a fluoride toothpaste, which has European approval, Sinclair is also working on a gel formulation that customers can use after painful dentistry, alongside an applicator for Decapinol for use in severe gingivitis. Sinclair has also applied for over-the-counter status for the mouthwash, which could potentially give it access to a multi-million dollar market.

Bucking the trend

But while OraPharma, which is due to start US sales of Decapinol before the end of the year, may wish to climb further into bed with Sinclair it would be a very surprising move if it made the decision to take on the whole of the company.

What counts against a deal is Sinclair’s strong European focus, which has seen it expand beyond the UK through a series of deals including the purchase of CS Dermatologies in March 2006, that has given the group a strong presence in France and Italy.

Sinclair’s diverse portfolio would also count against an outright takeover. OraPharma, as its name suggests, is focused on the oral health market, while Sinclair’s portfolio also includes dermatology treatments Atopiclair and Sebclair, two of its top selling products.

The recent movement in exchange rates that have seen the pound rise to levels almost double those of the dollar could create barriers for a US company. Especially as Decapinol, while a major part of the company, does not account for all of its value and J&J would be paying for assets it probably does not want.

History is also against a J&J takeover. Rarely do US groups buy the assets of European companies (See EP Vantage: EU companies making US M&A hay while euro shines, August 8, 2008). Most transatlantic acquisitions are done the other way, with the aim of the acquiring company getting a toe hold in the world’s biggest healthcare market.

European focus

So unless a US speciality pharma group like Stiefel, which earlier this month extended its skin franchise with the Barrier Therapeutics acquisition, decides to upset the status quo, a European company is more likely to buy Sinclair.

Given the few people operating in the dermatology space, the one company that stands out as the most obvious partner for Sinclair is Swiss company Galderma Pharma, which has recently completed a string of acquisitions including MediGene’s oral treatment for rosacea, Oracea.

But whoever the candidates may be, the outside interest comes at an interesting time for Sinclair Pharma, the group is gearing up to report its first underlying profits since its IPO. The company has forecast a 30% rise in sales to about £30.2m and for second-half underlying profits to exceed £2.5m, when it reports its full-year results in September.

The group is also preparing to file six products in the US. These events, along with the planned launch of Decapinol in the US in the coming months, mean that whoever is talking to Sinclair has chosen a perfect time to strike a deal.

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