Thursday, November 8, 2012

Sun Acquires DUSA - Transaction Valuation and Acquisition Rationale

Sun Pharma Acquiring Dusa is the third major acquisition in the dermatology space. The two other major transactions in the dermatology space being Valeant acquiring Medicis and Sandoz acquiring Fougera.

Transaction Valuation  
The transaction values DUSA at 28 times trailing earnings or 22 times 2012 estimated earnings. Dusa generated $45 million in revenues in 2011, which translates into a 5.1x revenue multiple. DUSA has about 31million in net cash.  Bulk of the revenues for DUSA come from Levuian Kerastic (treatment of actinic keratosis) which is a high margin business.
The kerastic business is driven by continued growth in installed base of  BLU-U units, which is also marketed by DUSA.
 Sun Pharma Acquires DUSA  - Acquisition Rationale
The apparent rationale behind Sun Pharma Acquiring DUSA appears to be

1)  Leverage Taro Sales Force - Cost Synergies and Revenue synergies between Taro and DUSA in the US - The product is sold to Clinical Dermatologists, where Taro has an extensive presence

2)  Scalability of the business - Geographic expansion beyond US and Canada - Sun Pharma  together with Taro may leverage their global presence to build the business in newer territories
3)  Large market potential in the US
  • Approximately 18-20% of Americans have actinic keratosis.  DUSA currently has less than 6 percent market share in a potential $800 - $900 million US market. 
  • Levulan PDT’s offers comparable therapeutic benefit to the most widely used treatment (cryotherapy) while avoiding  aesthetic consequences ( hypopigmentation leading to white colored mark) for the patient. 
  • The in-office Levulan PDT appears to offer superior efficacy to all the prescription topicals on the market at this time. In addition, physicians who can efficiently manage their practice while using Levulan PDT therapy can realize financial benefits by using the procedure to treat Actinic Keratosis in the office rather than writing a prescription or treating with cryotherapy
4) Growing Reimbursement for PDT
CMS reimbursement has been increasing over the years and currently the level of reimbursement for Levulan Kerastick treatment is at par with cryotherapy. Cryotherapy has historically been the standard of care for treatment of AKs.

About  Actinic keratosis (AK)
Actinic Keratosis is the result of sun damage to the skin, in other words it is the physical manifestation of cumulative damage that occurs over a lifetime. As a result, prevalence is quite low in younger populations and dramatically higher in older populations.
About DUSA
Levulan Kerastick and the BLU-U were approved for use together for the treatment of minimally to moderately thick actinic keratosis of the face and scalp, and recently,
The company is cash rich and became profitable in 2010. The utilization of PDT for the treatment of actinic keratosis is expected to grow further, given the aging U.S. population, more favorable reimbursement, the re-focusing of DUSA's sales force and its continuing education efforts, and a possible future update to the American Academy of Dermatology guidelines for the treatment of actinic keratosis.

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