Flamel – Eclat and NicOx – Altacor: What can we learn? 
Posted by Carlos on Mar 21, 2012

The past seven days have brought us two very interesting transactions. First, on March 14, Lyon-based Flamel announced their acquisition of St. Louis-based Eclat Pharmaceuticals. The press release contains a number of interesting nuggets, but this one caught our eye:

Mr. Willard concluded, “We expect that the combination of Mike’s [Anderson] drug development and regulatory expertise with Flamel’s best-in-class drug delivery platforms will create dramatic opportunities for the growth of Flamel Technologies….”

As we digested this news, we then learned that another French company, this time NicOx, has entered into an option agreement to acquire Cambridge, UK-based Altacor:

If NicOx decides to exercise its option to acquire all of the shares of Altacor, the acquisition would bring an experienced commercial management team and a marketing platform supporting sales in the UK and Ireland as a first step from which to build a presence in other EU countries. Altacor also offers a near-term pipeline and key partnerships with leading specialist companies.

Now we recognize that two transactions don’t make a trend, but these public announcements are quite consistent with what we have been hearing privately. In fact, there are three ideas we can take away from these announced deals (and possible other, similar deals announced later this year):

World Beyond NCEs – In an industry waiting for the next greatest NCE success or failure, where companies and market caps can be wiped out quicker than one can say “Complete Response Letter,” there remains an extraordinary number of small companies that are conceptualizing, developing, and marketing reformulations of old drugs into new products. In fact, significant value can be created by breathing new life into old brands, or by acquiring and marketing older OTC products into new territories. Will these products create multinational companies and change the practice of medicine? Probably not. However, they can provide therapeutic options to a small number of patients who may not otherwise have these options available to them because they do not fit the blockbuster nor the niche philosophies of so many multinational companies.

Cash Has Not Been Dethroned – Neither press release talks about this much, but one of the key factors in both of these deals is that both Eclat and Altacor have Revenue-generating products on the market, generating Revenues and Profits. We see this a lot in our practice. For example, several of our past and current clients have separate business units selling branded and generic products. It’s akin to the Warren Buffet approach, where he takes cash flow from insurance to acquire other assets. In these cases, however, the acquirers have access to this cash flow, which can be used for a number of corporate and business development purposes. In fact, we believe that neither one of these deals would have occurred in the absence of these Cash Flows.

Forward Integration – Both of these acquirers use forward integration as a sensible rationale for these transactions. In the NicOx case, they now have a sales an marketing infrastructure in the UK & Ireland in the ophthalmology space (assuming they exercise the option). Similarly, Flamel can now take products are run them through the Eclat Sales and Marketing infrastructure in the US.

We believe we will see many more small, off-the-radar transactions like this moving forward. Specifically, we believe we’ll see:

1. Ex-US companies acquiring US-based sales and marketing and regulatory access via the acquisition of small, profitable companies who are already selling products in the US.

2. Drug delivery-focused companies who have followed the traditional drug delivery model will try to forward integrate to get access to sales and marketing and, importantly, steady, product-generating cash flow.

At Lacerta Bio, we are highly aware of companies that fit both of these profiles. Please contact us if we can be of any assistance in finding and assessing target companies.

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