Novartis AG (ADR)(NYSE:NVS) Considering Quitting Dermatology Generic Drugs

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Reports indicate that Novartis AG (ADR)(NYSE:NVS) is planning to dispose of a unit which deals in generic dermatology drugs. The Swiss pharmaceutical giant has recently embarked on a move to get rid of less profitable treatments in order to concentrate on areas that offer more potential for growth such as cancer.

Novartis’ dermatology drugs business is U.S.-based and is estimated to be worth over $1 billion. Sources say that the sale could attract rival drugmakers as well as private equity firms. The assets that the unit possesses include manufacturing facilities and a couple of skin-care treatments.

Preliminary phase

According to sources Novartis has engaged a financial adviser as it looks to dispose of the unit. The sources further indicated that the plans were at an early stage and that a final decision was yet to be made which could mean that Novartis might opt to keep the unit.

Novartis built the dermatology business through acquisitions. In 2012 the pharmaceuticals giant acquired Fougera Pharmaceuticals at a price of $1.5 billion which made it the biggest seller of generics used for treating skin conditions. Last year Novartis also bought the skin-care brands of Upsher-Smith Laboratories known as AmLaction for an amount that was not disclosed.

The plans by Novartis to sell its skin-care generics business coincides with the drugs giant acquiring Advanced Accelerator Application, a radiopharmaceuticals firm based in France, at a price of $3.9 billion. AAA uses radioactive compounds to develop treatments that are used in fighting cancer. These radioactive compounds are also used in the diagnosis of diseases as they have the ability to create images of lesions and organs.

Flagship product

The flagship product of AAA is Lutathera which won the backing of the European Union two months ago. As a cancer treatment Lutathera has a risk reduction rate of 79% compared to Sandostatin which was developed by Novartis. This might see Sandostatin replaced by Lutathera.

“We see the more sophisticated technology to Lutathera commanding a premium price to Sandostatin and estimate peak sales potential at $2 billion,” Bruno Bulic an analyst at Baader Helvea wrote in a client note.

On Wednesday shares of Novartis edged up by 0.23% to close the day at $82.77.

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