Hafslund Nycomed to merge with Ivax in move uniting generics and contrast

No changes expected in diagnostics operations of Oslo company

Hafslund Nycomed officials say they expect few changes to theircompany's diagnostic imaging business following the proposed mergerof the Norwegian contrast developer with U.S. generic drug manufacturerIvax of Miami. The two companies last week announced a plan tomerge operations and create a combined pharmaceutical firm calledIvax Nycomed with 13,000 employees and 1995 revenues of $2.5 billion.

The companies portrayed the move as a merger of equals in whichNycomed and Ivax shareholders would receive shares in Ivax Nycomedon a 1:1 basis. Ivax Nycomed will be headed by Ivax chairman andCEO Dr. Philip Frost as executive chairman, while Nycomed presidentand CEO Svein Aaser will retain those titles in the merged company.

The combined firm will be headquartered in London with officesin Oslo and Miami. The merger is being treated as a pooling ofinterests for accounting purposes and is expected to close inthe first half of 1996.

The move comes slightly more than a year after Hafslund Nycomedbought the U.S. diagnostics business of Sterling Winthrop (SCAN7/13/94). Even as it endeavored to introduce U.S. customers tothe firm's new ownership, Nycomed made no secret of the fact thatit was interested in establishing relationships with other drugfirms. A rumor in the industry this summer portrayed the Oslocompany as joining forces with Swedish drug firm Pharmacia, butNycomed officials denied that there had been any contact betweenthe firms (SCAN 8/2/95). Pharmacia later merged with Upjohn.

Ivax is an unknown quantity to many in the medical imagingindustry, but the firm claims that it is the largest generic drugmaker in the world. Nycomed and Ivax are betting that their differenceswill be a source of strength in achieving corporate synergies,by introducing Ivax's generic drugs into Nycomed's European salesand marketing channels. The prospect of European sales of genericdrugs was a major catalyst for the merger, according to Dan Peters,president of Nycomed Inc., Hafslund Nycomed's U.S. subsidiary.

"It gives Hafslund Nycomed a strong position in the genericmarket in Europe, where they have publicly stated they wish tobe a leader," Peters said. "A huge part of this wasthe fact that the European opportunity is so significant in termsof generics."

A quick look at the relative sales figures for each companyin its main markets confirms that there is room for growth. HafslundNycomed had 1994 European sales of $839 million, while Ivax hadsales of $210 million in the region, according to Eric Cameron,senior vice president for corporate communications at HafslundNycomed. In North America, the positions are reversed: Nycomedhad 1994 sales of $255 million and Ivax of $917 million.

"The new company will have two very strong legs to standon, the diagnostic imaging part of the business and also the genericpart that Ivax supplies," Cameron said.

The firms are also expected to achieve synergies by marryingNycomed's contrast agents with intravenous drug delivery systemsmanufactured by Ivax. Ivax's McGaw subsidiary makes intravenoussolutions and injection systems that can be bundled with Nycomed'sproducts in hospital sales, according to Cameron.

Generic contrast agents? Ivax's experience in generics hascaused some pharmaceutical industry analysts to postulate thatIvax Nycomed might develop generic x-ray contrast agents. Bracco'siopamidol (marketed as in the U.S. as Isovue) is due to go off-patentnext year, raising the specter of generic competition with Nycomed'sown Omnipaque agent.

"The generic contrast agents have not been a prominentfactor in this proposed merger," Cameron said. "This(merger) is not at all inspired by the fact that somewhere downthe road we might be facing generic competition in the contrastmedia field."

Indeed, Nycomed plans to continue its contrast agent operationsmuch as it might have if a merger had never occurred. The diagnosticimaging business will continue to be led from Hafslund Nycomed'sOslo headquarters, and Nycomed will maintain the relationshipsit has signed with other pharmaceutical firms, such as a dealinked in August with peptide imaging agent developer Diatech (SCAN8/30/95).

Consolidation will be minimal as a result of the merger, primarilybecause there is so little overlap in the businesses of the twocompanies. Rather than trimming fat, the firms would try to add"lean muscle," said Hafslund Nycomed chief executiveAaser.

"The times when you worry about (consolidation) is whenboth partners have similar R&D programs," said Alex Zisson,an analyst with Hambrecht & Quist in New York City. "Thenthe chance is that one is going to be cut. This is really a truemerger, rather than an acquisition where the big company cutsand slashes (the other)."

The merger will also put Ivax Nycomed on more secure footingin defending itself against hostile takeovers in the future. Thepharmaceutical industry has experienced a raft of mergers andacquisitions this year as the industry consolidates. As a resultof the merger, Ivax Nycomed will be a little harder to swallowthan either company on its own.

Hafslund Nycomed's Cameron indicated that corporate securitywas a factor in his company's decision to pursue a merger withIvax.

"We feel that it is preferable to this company and itsshareholders that we voluntarily join forces when we see a goodfit as we see here, and that we are able to go on focusing thecompany as we have up to today, instead of the alternative, whereyou might have a breakup situation and the company sold in severalpieces," Cameron said.