Nycomed and Amersham to merge, creating $2.5 billion drug company

Deal caps Norwegian company's search for partner

Norwegian contrast developer Nycomed culminated its search for a corporate partner this month by announcing a merger agreement with Amersham International of the U.K. While the selection of Amersham surprised the imaging industry, the merger makes sense, in view of the complementary product lines of both companies.

Nycomed over the last two years has made no secret of its intentions to link up with another pharmaceutical company, and has been the frequent target of merger or acquisition speculation (SCAN 6/25/97). Nycomed needs such a partner because its heavy reliance on its contrast media business has made it susceptible to market downturns, such as the recent erosion in prices for x-ray contrast. The price drop has forced Nycomed to implement its Focus 98 cost-cutting program, which has included job cuts.

Nycomed's first attempt to find a partner was unsuccessful. The company announced a merger agreement with U.S. generic drug developer Ivax of Miami in 1995 (SCAN 10/25/95). That deal fell through, due to the opposition of Nycomed's Norwegian shareholders, some of whom opposed losing control of their company to a U.S. firm.

Amersham makes a much better fit for Nycomed than Ivax, however. Although both companies are major players in the contrast media industry, Nycomed is centered on x-ray and MRI agents, while Amersham's main business is in radiopharmaceuticals. Nycomed's only participation in that business is a product licensing deal with peptide developer Diatide of Londonderry, NH, for products under development.

According to the details of the proposed merger agreement, the two companies will merge through a stock swap, with the new company called Nycomed Amersham plc. Nycomed shareholders will hold 53% of the outstanding shares of Nycomed Amersham, with Amersham shareholders receiving 47%. To sweeten the deal for Nycomed shareholders, they will receive a special dividend of 5.62 Norwegian kroner (41) per share.

Nycomed Amersham will have annual revenues of $2.48 billion and a market capitalization of almost $3 billion. The company will have approximately 11,600 employees, with Nycomed chairman Johan Fredrik Odfjell becoming chairman of Nycomed Amersham and Amersham chairman Richard Lapthorne named deputy chairman. About 250 to 300 jobs will be lost through consolidation, and the firms expect to save $67 million annually in the three years following completion of the merger.

The new company's corporate and worldwide imaging headquarters will be located at Amersham's facility in Buckinghamshire, U.K., while the European imaging and pharmaceuticals divisional headquarters will be located in Oslo. The deal requires the approval of Nycomed and Amersham shareholders, who are expected to vote on the proposal in September.

Both companies cited the complementary fit between their product lines as one of the major strengths behind the proposed merger, which they claim will make Nycomed Amersham the largest in vivo imaging company in the world, with annual imaging sales of over $1.1 billion.

"Nycomed's established strengths in chemistry will be reinforced by Amersham's competence in the biosciences," a Nycomed spokesperson said. "Amersham's cellular and molecular biology skills base will improve the ability of Nycomed Amersham to anticipate and develop the increasingly sophisticated functional diagnostics that will be required for medical practice into the next century."

The agreement is also expected to improve Nycomed Amersham's position in securing group purchasing contracts with large healthcare entities because it will be able to offer a broader range of imaging agents than either company could provide independently, the company said.

Nycomed claims the number-one position worldwide in x-ray contrast media sales and the number-two spot in MRI. Over the long term, the company is banking that its ultrasound contrast agent under development, NC100100, will grab a share of a market that the company believes will be worth $1.7 billion by 2005. NC100100 has completed phase II trials for major applications and is targeted for submission to the Food and Drug Administration during 1998.

Some of Amersham's major product lines include indium-111 radiotracers, as well as its Myoview cardiac imaging agent, Metastron therapeutic for bone pain, and Ceretec brain imaging agent. The company also owns the Amersham Healthcare/Medi-Physics radiopharmacy chain in the U.S. It claims to be the largest radiopharmaceutical supplier in the world, although it holds the number-three position in the U.S.

In addition to shareholder approval, the merger agreement is contingent on the completion of Amersham's merger of its Life Sciences division with Pharmacia & Upjohn's biotechnology unit. Amersham shareholders were expected to approve the Pharmacia merger at a meeting last week.