EUSA Pharma: Strategies of a Speciality Company




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Video title: EUSA Pharma: Strategies of a Speciality Company
Released on: April 01, 2008. © PharmaVentures Ltd
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In this exclusive interview, Fintan Walton talks to Bryan Morton, Founder and CEO of EUSA Pharma. Bryan begins by discussing the establishment of EUSA Pharma, and how its formation was motivated by the successful acquisition of Zeneus Pharma (also founded by Bryan), by Cephalon in 2005. Bryan talks about the three speciality pharma models employed by EUSA, the similiarities and differences between the US and Europe speciality pharma and the reason for basing EUSA in the US. He also talks about EUSA’s strategy in Europe versus the strategies of the more traditional, private European mid-sized companies. Bryan speculates on the future of speciality pharma companies, and of EUSA in particular. The interview ends with a discussion of EUSA’s pending acquisition of US company Cytogen, and EUSA’s strategy with regard to further acquisitions.
Establishment of EUSA Pharma, and how its formation was motivated by the successful acquisition of Zeneus Pharma.
Fintan Walton:
Hello and welcome to PharmaVentures Business Review here in London. On this show I have Bryan Morton, who is CEO of EUSA Pharma based here in the UK, but actually headquartered in the US, welcome to the show.
Bryan Morton:
Thank you Fintan Walton, nice to be here.
Fintan Walton:
Good. Bryan Morton, you are a serial entrepreneur, your origins come from the traditional pharmaceutical industry and you've worked there, but I suppose your profile is risen significantly particularly here in the UK and amongst the investment community because you are involved in the acquisition of some of the Elan's oncology products into a company called Zeneus Pharma and that [PharmaDeals ID = 15204] company was backed by Apax and you've managed to sell it several years later for three times, I know that makes companies like Apax extremely pleased, you sold it to Cephalon based in the US?
Bryan Morton:
That's right.
Fintan Walton:
And now you are a CEO of EUSA Pharma and you are doing it again why?
Bryan Morton:
Well success breeds success Fintan Walton, so we like to finish really what we started. Zeneus Pharma had a very nice European infrastructure, Cephalon [PharmaDeals ID = 22786] wanted a European infrastructure with oncology products and after 22 months growing that business we sold it to them $360 million. And that was my motivation then to start again, so EUSA was formed just three months later in April 2006.
Fintan Walton:
Right. So does that mean that you, if you hadn't sold Zeneus Pharma to Cephalon you would have continued with that and built it up further?
Bryan Morton:
Yeah, now the plan with Zeneus Pharma was to be eventually a very good mid cap pharmaceutical company. But of course backed by you know one of the premier VC's in the area Apax and an offer comes along it's very hard to resist that. And three X after 22 months I think made the shareholders including me very happy. But of course that was the end of Zeneus Pharma being acquired into Cephalon and so the new venture is really filling that gap for me.
The three specialty pharma models employed by EUSA Pharma.
Fintan Walton:
Okay. Now we go into more detail about EUSA , but the beginning of you said after a couple of months or two or three months you set up EUSA and you started with just cash nothing else?
Bryan Morton:
Yeah in fact that started with $3 million of incubator funding from Essex Woodlands a US VC and that was to support me to go find the deals that would create the base for EUSA and the mission was always from that beginning to be a transatlantic specialty pharma company, so I said about trying to build either in the US or Europe and it just happened that Europe is first and so that's why we are based in Oxford and began with the acquisition of a small company called Talisker.
Fintan Walton:
Before you did that, but the deal presumably with Woodlands, Essex Woodlands was 3 million but obviously they were going to give you more than that there was a reserve of up to 50 million plus to do acquisitions?
Bryan Morton:
That's right they had raised the new fund and the 3 million Series A was the incubator money but it was supported also with an underwriting of $50 million Series B of course against the appropriate and value building acquisitions that we would make.
Fintan Walton:
And you've gone out to do not just product acquisitions, you've gone out to do company acquisitions?
Bryan Morton:
That's right.
Fintan Walton:
Why do you take that as a strategy?
Bryan Morton:
Well our model is to build infrastructure in Europe and in the US. And so our first acquisition was Talisker which gave us product and a small infrastructure. Our second acquisition was OPi, Orphan Pharmaceuticals International [PharmaDeals ID = 26657].
Fintan Walton:
In France.
Bryan Morton:
Which gave us a terrific European infrastructure. And the recent planned acquisition subject to SEC review and shareholder approval is to buy Cytogen which has a terrific US infrastructure, so on completion we will have a very good European and US sales and marketing infrastructure all supported by central systems.
Fintan Walton:
So how much money have you committed now in all these acquisitions?
Bryan Morton:
The current funding inside of EUSA is $275 million.
Fintan Walton:
So you've gone from the 3 million to 270 again?
Bryan Morton:
It's just a multiple of 3 really. We have 30 million of debt which is a GE debt facility in the business and the rest is equity.
Fintan Walton:
Right. Yeah we've had the GE guys here on our show talking about their particular business model.
Bryan Morton:
Yes.
The similarities and differences between the US and Europe specialty pharma.
Fintan Walton:
But I suppose the key thing here is that you are also a specialty pharmaceutical company obviously this is the aim, what's it like been a specialty pharmaceutical company in Europe and what's the difference between Europe and US and what's the difference within Europe lets say with the UK?
Bryan Morton:
Right. It's a great question because there are very different specialty pharma models, I mean we've got three types of specialty one we are in three therapeutic areas oncology, pain and critical care. We only cover hospital based clinicians that's the second specialty. The third specialty is we've over the years developed systems that support that business which I think no other specialty pharma company has finance Pharmacovigilance, supply chain, reasons many companies can't expand beyond their usual borders. Europe is different to the US, but the similarities between Europe and the US lie in registration, Pharmacovigilance and of course the products and their pharmacology so that's common, what's different is local reimbursement medical practice and so we believe in very strong central management but local delivery so each of our countries has their own General Manager and Medical Director to respond to local need.
Fintan Walton:
And the opportunity to get global products for a specialty pharmaceutical company is it or you more or less forced into regional into regional products because of the differences between these various territories?
Bryan Morton:
That's a question that I think a lot of companies are asking themselves, can you get a country license and there are some. Can you get a regional license Europe, Asia-Pacific, US and you can certainly do that Europe now is effectively one registration body not quite but it almost is and getting a transatlantic global license often was the territory of big pharma. But you know over many years now there has been a tremendous investment in biotech, big pharma don't want products that are 100, $200 million of sales across the Atlantic, we can do that and we can register in Europe and we can register with FDA and of course once you've done that then there is a commonality an infrastructure economy of scale. And so we bank on that, but can we all do global licenses well first you need the infrastructure then we might give the licenses.
Fintan Walton:
But comes back actually to an important point because you know clearly as you are pointing out you've got the large pharmaceutical companies the big global players and we have over the last few years developed within both the US and then within Europe and elsewhere specialty pharmaceutical companies which tend to be smaller companies, when it comes to issues like pricing reimbursement and particularly here as I say for an example in the UK where you have the UK government putting greater pressure on prices getting those prices cut how does that affect a company like yours?
Bryan Morton:
Well particularly if you are based in the UK which we are in the build of our European organization it's really quite de-motivating to have a government that sees the pharmaceutical industry and in particular the ABPI as a soft under belly to reduce the cost of drugs. To my mind the cost of drugs is about the benefit of drugs and if you are treating people and preventing disease, preventing the hospital admissions that's a very good thing and the economics of that should be taken into account. To simply go and take a one price fix all approach to me is not sensible and I think smaller companies pay a much bigger price than the bigger guys like Glaxo and AstraZeneca. And, but I think it's changing far too quickly in the UK. I think as a place to invest in the industry I have my questions about that and if the government continues to attack the industry in this way and as medical practice in the UK changes it is not at the fore front anymore of top flight medicine in some respects this may change the investment features and that's why I developed EUSA to be a US company to be honest.
The reason for basing EUSA Pharma in the US.
Fintan Walton:
Yeah, I was gonna ask you that because I mean clearly having developed Zeneus Pharma as a, Zeneus Pharma.
Bryan Morton:
Zeneus Pharma.
Fintan Walton:
As a company which is based here in the UK you've consciously made sure that EUSA your parent company is now based in the US was that because of an equity financing reasons or reasons around pricing reimbursement?
Bryan Morton:
Two things, when we formed Zeneus Pharma within months we had our 7% share of price cut in the UK and the UK in our business was at that time a big proportion of the whole business. And we had to suffer that and so our model was for growth yet delivering good health to patients. To suffer that early was really quite disappointing despite lots of pressure through ABPI and (indiscernable) BIA to government, but we overcame that and also I think as an investment environment and an IPO opportunity I think the US has proven time and time again that it's mostly a more efficient market and so that's why we with the investors decided to be a US company in the end.
EUSA Pharma's strategy in Europe versus the strategies of the more traditional, private European mid-sized companies.
Fintan Walton:
So going back to the specialty area has always intrigued me that we've had a number of mid sized privately owned pharmaceutical companies in Europe who've never really exploited the opportunities that exist that companies like yourselves have been able to move in on the European scale, why is it that it is the entrepreneurial equity based companies towards succeeding and seizing the specialty pharmaceutical from pharmaceutical sector rather than these traditional older family of midsized companies?
Bryan Morton:
Yeah, I think there is a lot of a reason for that, but the two key reasons I think are experience and indeed culture. It's very hard for the Italian family companies or Spanish family companies to go beyond their borders and feel comfortable. If you look at a competitor a very good competitor of ours ProStrakan they've build their company in Europe through acquisition but what they wind up with is you know having to adjust then these acquisitions into the culture of ProStrakan. What we have done in both cases with Zeneus Pharma and EUSA is to buy existing infrastructure in Europe where they cover all the countries of Europe and there is one culture and we supply on top of that top rate systems that allow us to manage it very effectively. And if you've not done that before that's quite a daunting task just talk about getting price reimbursement in France to any American or French, non-French speaking person and that's pretty daunting.
Fintan Walton:
Yeah. And I suppose it comes on to the other issue which is and how do you populate a company like yours with the right management and clearly you've got your track record, you've got Rolf Stahel who use to be the CEO of Shire Pharmaceutical another company that's merged here in the UK, How important is it a team?
Bryan Morton:
Very, you can't ever start what we were starting without having a really experienced team. We've got people from Merck, Glaxo, Amgen lots of experience who've decided they want to move from big pharma to specialty and small pharma where they got more autonomy they are more involved, their ownership in the companies is such that there is a capital gain element which of course we've seen the stocks of big pharma not necessarily as capital gain opportunities as it was before. But I think you know Rolf Stahel is one example, Rolf basically built to the point of 2 to $3 billion of value at Shire a transatlantic company and then his successor Matt Emmens a good friend of mine from Merck built it to become you know a world leading specialty pharma company. And this has been done terrifically well and I said to Rolf how about we build the next Shire not as big but better and that was him, sunk, he was in the mission and of course he is looking forward to helping us build that next specialty mid cap pharma company.
Future of specialty pharma companies.
Fintan Walton:
Right. I suppose the other thing that comes to mind I mean that clearly specialty pharmaceutical companies tend to be eventually acquired, so looking into the future are we likely is the specialty pharmaceutical company just a transient stage in the development of pharmaceutical industry and would " are we likely to see specialty pharmaceutical companies lets say 10, 15 years time, what's your view on that?
Bryan Morton:
Yes. I think we will always see specialty pharma, our industry has always been fragmented, it's by very nature the development of drugs, you can develop drugs in a small lab with the technology and have a world impact. All the great companies started with one great product Zantac for Glaxo, Tagamet for Smithkline, Rituximab you name it, it's all come from a product opportunity. So there will always be specialty pharma, but to answer your question about our future, we can never say a trade sale will not happen if somebody is interested, we recognize we are backed by equity providers and a good return for everybody, if it's right we would certainly do that, but I can say our plan is to IPO. We've always wanted to build a company that will have a long life ahead of it. And so the way to do that is to use private equity money to get the momentum and then do an initial public offering.
Major investors in EUSA Pharma.
Fintan Walton:
Well just going back to the financing because obviously in your Zeneus Pharma stage you only had one shareholder a major investor which was Apax this time you've got a platter of good goal standard investors you got the Goldman Sachs, you've got 3i, you just recently got TVM and I think as well
Bryan Morton:
Correct.
Fintan Walton:
Does that actually help or hinder you in what you are trying to do?
Bryan Morton:
I think it helps, they're all specialists in healthcare sector. They've all done well and actually suffered in specialty pharma so they are discerning. There is capital available for good ideas. And I felt this time I would want to syndicate our investors as opposed to one investor really to be able to have a broader network that will allow me to do deals and indeed of the four big deals that we've done two came directly from links with investors.
Fintan Walton:
Right.
Bryan Morton:
So I think in our case it's been a very positive affair.
Fintan Walton:
And you've also got NovaQuest in there as well?
Bryan Morton:
Yes.
Fintan Walton:
Why did you bring NovaQuest in?
Bryan Morton:
Well NovaQuest have a small but very significant fund and of course with their experience in CRO, CMO areas they are phenomenally connected in the world of pharmaceuticals. And so to have a group with that experience behind us was extremely valuable. And indeed I would say (indiscernable) who is the NovaQuest man constantly in touch as our Goldman Sachs, 3i, Essex with ideas and thoughts and so it's a, its a very entrepreneurial group and I am delighted with it.
EUSA Pharma's pending acquisition of US Company Cytogen, and EUSA Pharma's strategy with regard to further acquisitions.
Fintan Walton:
I suppose lets go back to EUSA again, because you've recently announced your intention to acquire Cytogen [PharmaDeals ID = 30390] which is a publically quoted company, specialty pharmaceutical company in the US, I understand it requires still SEC approval for the acquisition tell us about that acquisition and what it brings to EUSA?
Bryan Morton:
Yeah, it will close with SEC reviewing and shareholder approval as you say. We, in May of last year had said about to find having now got the European infrastructure certain ready, launching products how do we get to the US and there are different ways to do it. ProStrakan have done it in a different way then we have, there are many ways to do it but we wanted to acquire infrastructure for the reasons that I gave you before, we'd like to build an EUSA culture right from the get go. And so we have a list of 10 companies, Cytogenwas at top of the list they are in oncology, they have very good sales force, they had not made profits but they were very definitely capable of delivering product growth and so for us to acquire infrastructure and products with growth plus rights in Europe giving us transatlantic assets so it was a perfect opportunity for us to acquire them through this cash merger approach.
Fintan Walton:
Right. And the other key thing, you clearly you are on the acquisition trail so there is more to come?
Bryan Morton:
Yes we'd like to add products whether it's by licenses of products or whether it's acquisition of companies with the right products and to be able to get transatlantic product assets to supplement on top of this infrastructure which is very capable, so we would look for products in oncology, pain and critical care that could allow us to grow very substantially in sales and become profitable. And as Shire have done become a very value added company going forward.
Fintan Walton:
Bryan Morton, it's fascinating to talk to you and learn more about EUSA and your serial entrepreneurship wish you luck. Thank you very much indeed.
Bryan Morton:
My pleasure Fintan. Thanks for having us here.
Bryan Morton
Founder
Bryan Morton has a BSc in Pharmacology from Aberdeen University and a MBA from Durham University. He began his pharmaceutical career in sales, and has held positions of increasing responsibility in medical information, marketing, sales management, business development and general management during a 30-year career in the healthcare industry, largely with Merck and Co and Bristol Myers Squibb. During this time Bryan Morton has lived and worked in the UK, the US, Australia and Belgium, and in 2003 he founded Zeneus Pharma through the acquisition of Elan's European sales and marketing business for US$120 M in a private equity deal. Following the sale of Zeneus Pharma for US$360 M in late 2005, Bryan Morton founded EUSA Pharma in 2006, with backing from Essex Woodlands Health Ventures.
EUSA Pharma
EUSA Pharma is a specialty pharma company with a strong and growing portfolio of specialty hospital medicines. It was been built through the acquisition of Talisker Pharma in July 2006, and of OPi in March 2007. The company's primary marketed products Erwinase,Rapydan, Kidrolase, Fomepizole and Xenazine, are focused on the areas of oncology, pain control and critical care. In addition, EUSA Pharma has an active late-stage development pipeline, which includes candidates targeting rheumatoid arthritis and Alzheimer's disease, schizophrenia, the prevention and treatment of infected skin ulcers, and local post-surgical pain control.