Boots is paying a top premium of about nine times sales for Flint Labs to protect its ability in the future to "derive full benefit from the sales of its products rather than ceding a large part of the profit from products to licensees." The British company candidly explained its willingness to bid way above the going rates to purchase Baxter Travenol's retail drug business. Without directly mentioning the ibuprofen experience, the company indicated its view of the sales it lost by letting Upjohn develop the U.S. tradename for the chemical. An expanded self-marketing effort in the U.S., Boots said, will create trademarks to lengthen product life-cycles. "By launching and marketing products in its own name," Boots said, the company "will enjoy the benefit of the goodwill associated with its products after the expiry of their patent lives." Boots has been forced to participate as a contract manufacturer and compete with generics on a price basis in the U.S. ibuprofen market. Upjohn, by contrast, did $120 mil. in sales with its Motrin brand in the face of generic competition in 1985. Indicative of Boots' relegation to the ibuprofen generic market, the company received two ANDA approvals in late July for the 800 mg. dosage of ibuprofen, one under its Rufen tradename and one without a tradename -- presumably to supply other generic marketers. Flint Has Wrung Big Profits Out Of Off-Patent Product Synthroid: Over 60% Pretax Margin In 1985 The Flint acquisition will build Boots' U.S. sales force from about 190 to 240-250, Boots said. In an Aug. 6 release announcing the purchase, Boots said Flint "will provide a substantial increase in Boots U.S. pharmaceutical sales and its prospects." The British firm says it plans no reductions in Flint staff. The acquisition appears primarily as a long-term move to build on Boots' eight-year experience in the U.S. market. However, Boots declared that it expects short-term results. "Rationalization in the overheads and sales forces of the two businesses and wider marketing will be achieved at an early stage, so that the combined operation will produce significantly greater overall sales and increase the profit potential of existing products," the company said. Boots added that "this will partly be achieved because sales representatives of both businesses concentrate on visiting family doctors, and the combined sales force will be able to handle each other's product range." According to the figures released on Flint, the Baxter subsidiary has an outstanding profit level. In 1985 Flint had pretax earnings of $33.1 mil., which was 61.6% of sales totaling $53.7 mil. Boots noted that "the combined sales of pharmaceutical products in the U.S. of the Boots Group and Flint would have totalled $136 mil." in calendar 1985. Boots had 1985 U.S. sales of approximately $82 mil. Flint has maintained its profits while basing its business on an off-patent product, Synthroid (levothyroxine) for the treatment of thyroid deficiency. The product accounted for 83% of Flint's 1985 sales (not including the chymopapain products), or $44.3 mil. Boots noted that although Synthroid has been off patent for several years, it held 74% of the U.S. synthetic thyroid replacement market in 1985 and 57% of the total U.S. thyroid replacement market. Levothyroxine is viewed as one of the most difficult drug products to replicate with the same levels. Flint also markets Choloxin (dextrothyroxine) for reduction of cholesterol and two products for treatment of burns and wounds, Flint SSD (silver sulfadiazine) and Travase (sutilains ointment). Boots is also getting the herniated disc product, chymopapain [Chymodiactin/Discase]. The way was paved for the inclusion of chymopapain in the deal when Baxter acquired rights to Smith Labs' Chymodiactin brand in July ("The Pink Sheet" July 28, T&G-6). At that time, Baxter estimated that the world market for chymopapain is $10-15 mil. annually. Boots noted that the active ingredients in Synthroid and Choloxin are manufactured by Flint in Kingstree, South Carolina, and Cleveland, Mississippi and tableted in Jayuya, Puerto Rico, in facilities leased with various parties and shared with other divisions of Baxter Travenol. Flint's other products are manufactured under contract by third parties. Flint's lack of facilities is not a negative for Boots. The British firm recently opened a $36 mil. production, warehousing and laboratory facility in Shreveport, Louisiana. The company also has facilities in Palisades Park, N.J. Prior to the Flint purchase, but with the new facility, Boots was in the position of having a pipeline of products from overseas, the necessary manufacturing facilities, but a weak marketing structure. Boots was rumored to have offered Revlon more than the $700 mil. that Rorer paid to purchase USV and Armour. When Boots purchased its first toehold in the U.S. market through the acquisition of Rucker Pharmacal in 1977, it inherited a manufacturing facility with a number of production problems. During a 1983 inspection by FDA, the company received a report from the FDA investigator with 30 alleged deficiencies. The new plant was recently inspected for production of an ibuprofen line extension and showed only one deficiency relating to the misrecording of a tablet punch die process. Boots said it believes the "combined enterprise" of its existing operations with Flint "will have the cash flow and sales force upon which to build the scale of operation required to market new products in the U.S." The British firm said its U.S. subsidiary "is not yet big enough to handle the launch of major new products on its own." With Flint, Boots plans to launch the antidepressant Prothiaden (dothiepin). That drug had been under license to Marion, which had been developing it for U.S. marketing until earlier this summer. When Boots repurchased rights to the product ("The Pink Sheet" June 9, In Brief). Boots also recently traded for rights to the erythromycin brand E-Mycin giving Upjohn exclusive marketing rights on the NSAID, flurbiprofen (Upjohn's Ansaid). Boots kept topical ophthalmic rights to the drug. Other products in Boots' pipeline include flosequinan (BTS 49465), an arteriovenous vasodilator that Boots said is in Phase II clinicals for hypertension in the U.S., U.K. and other European countries. Boots noted that the drug has demonstrated "potential in the treatment of heart failure." The firm also has an antidepressant, BTS 54524, in clinicals. Another product, Furamide (diloxamide fuorate), is under investigation for the orphan indication of asymptomatic intestinal amebiasis. Boots' current product line includes Rufen; Lopurin (allopurinol); Zorprin (zero-order release aspirin); Ru-Tuss Rx tablets and capsules and OTC Ru-Tuss expectorant and liquid; the topical corticosteroid F-E-P Creme; and the potassium agents Twin-K and Twin-K-Cl. In June, the firm also licensed the bulk laxative Konsyl from LaFayette with the option to buy. Boots is purchasing Flint for $555 mil. in cash "plus a royalty based on future sales [of Flint products] once these are in excess of current expectations," Boots stated. To finance the acquisition, Boots is selling 184 mil. common shares "conditionally placed through the market at (BRITISH POUND)2.05 per share." Under an agreement with Boots, investment banker Morgan Grenfell & Co. is purchasing or procuring purchasers for all the new common Boots shares. The acquisition is expected to be completed on Sept. 3. By comparison, Boots paid $25 mil. in 1977 for Rucker Pharmacal. The figure represented 16 times Rucker's 1976 net earnings of $1.5 mil. Rucker, a regional branded generic firm, had 80 detailmen at the time of the purchase. The Flint deal is a boon for Baxter Travenol. The company has gained almost $1 bil. from the divestitures of Flint and American Critical Care. DuPont paid $425 mil. for American Critical Care, approximately eight times 1985 sales of approximately $50-55 mil. and in the range of 30 times earnings ("The Pink Sheet" July 14, p. 3). Baxter announced its intent to sell the two pharmaceutical units in April as part of a strategy following its merger with American Hospital Supply Corp. Baxter said its debt will be down to 35% of total capital after the sale of Flint. The company's debt was at 47% when it purchased American Hospital Supply. Chart omitted.
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