Europe's fourth largest drug group gains brands including the liquid supplement Boost and tube-feeding formulas Isocal and Ultracal as well as Mead Johnson's trademarks, patents and intellectual property.
The deal will also give it greater access to the Japanese market and allow the business to better leverage its disease-specific brands as per its overall growth strategy, said Novartis.
The Basel-based group recorded sales of $20.9 billion and a net income of $4.7 billion in 2002. Its current strategy is focusing on the core pharmaceutical and healthcare business, with an attempt to divest its nutrition activities last year.
But although it got rid of its food and beverage business, sold to Associated British Foods for €272.5 million, its nutrition brands, put up for sale in February 2002, failed to attract such interest and were then separated off into a stand-alone unit late last year, called Nutrition & Sante. This includes the Cereal and Gerble slimming brands, rumoured to be of interest to Nestlé, and the Isostar sports drink.
The nutrition unit, which had sales of $711 million in 2002, has however been expanding in the clinical feeding area. In June, it bought Semper Clinical Nutrition from the Arla Foods subsidiary Semper, the second largest medical nutrition business in the Nordic region, for an undisclosed sum.
Expansion at the medical nutrition unit will target the world's growing outpatient and ageing populations. The percentage of the US population over 65 is expected to grow from 17 per cent to 25 per cent between 2005 and 2020. Analyst Denise Gugerli-Etter from Swiss firm Sarasin said she expected to see the unit generate sales of $832 million in 2003, 3.4 per cent of the group's total sales.
Novartis' current range includes supplements, as well as other products administered through tube feeds and specific medical devices. Sales of the acquired products reached $220 million in 2002, according to Mead Johnson, a subsidiary of Bristol-Myers Squibb.
"For Novartis as a group this transaction is a very small one. The acquisition price (1.75 times the 2002 sales of the products) looks attractive. We believe that this must be seen in context with the lower margins that the medical nutrition business are generates in general," said Gugerli-Etter.
Mead Johnson specialises in infant nutrition and is the market leader in infant formula in the United States and Taiwan.The US firm will continue to manufacture and supply the majority of the acquired products for Novartis on an ongoing basis.