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Ovation Pharmaceuticals: Finding Healthy Profits in Healthcare

May 14, 2015

Building on the firm’s expertise and track record of success in the healthcare sector, GTCR focused on the specialty pharmaceutical industry in the late 1990s. GTCR strongly believed the specialty pharmaceutical industry was poised for significant secular growth and offered an opportunity to establish an attractive, recurring revenue business through the acquisition of products with FDA market exclusivity, intellectual property protection and other attractive attributes. At this time, M&A activity in the pharmaceutical industry was robust. After a wave of large pharmaceutical mergers in the 1990s, many large diversified pharmaceutical companies were rationalizing their drug portfolios, selling small, non-core drugs servicing niche markets. This trend increased acquisition and in-licensing opportunities for smaller specialty pharmaceutical companies. At the same time, many mid-sized and large pharmaceutical companies had significant cash balances and were willing to pay full value for mid-sized specialty pharmaceutical businesses. Of particular interest were those businesses well positioned in key therapeutic focus areas, possessing both attractive on-market and development-stage drugs to drive future growth.

GTCR knew that building deep domain expertise and partnering with talented management leaders were critical to investing successfully in the pharmaceutical industry. We spent several years proactively researching and networking within the pharmaceutical industry. Two exceptional leaders rose to the top: Wilbur (Bill) Gantz and Jeff Aronin. In 2002, GTCR partnered with these leaders to build Ovation Pharmaceuticals, a specialty pharmaceutical company based in Deerfield, Illinois. Mr. Gantz (Chairman of Ovation) was previously the President of Baxter International Inc. and Chairman and CEO of PathoGenesis Corporation, a company he founded, built and successfully sold. Mr. Aronin (founder, CEO and President of Ovation) was previously CEO of two successful venture-backed healthcare companies and a Sales and Marketing Executive with American Health Products and Carter-Wallace.

Ovation and GTCR focused primarily on acquiring on-market and development-stage drugs in the therapeutic areas of neurology, hematology and oncology. Many of these products targeted orphan indications, i.e., small patient populations with a high unmet medical need. Ovation made eight acquisitions from 2002 to 2006, largely carving out products from major pharmaceutical companies. Mr. Gantz and Mr. Aronin strategically transformed the compounds purchased into a standalone, fully functional specialty pharmaceutical company with a dedicated sales force targeting specific prescribers, a strong product development group and a regulatory function that worked very effectively with the FDA. One of the acquisitions included the purchase of the North American rights to two development-stage neurology drugs, Sabril and Frisium, in 2004. The subsequent development and FDA approval of Sabril in 2009 was a substantial value driver for Ovation in its eventual sale.

Ovation made several additional neurology acquisitions, further transforming the company. Most importantly, Ovation acquired the U.S. commercial rights to Xenazine, the first drug approved in the U.S. for the treatment of chorea, a debilitating movement disorder associated with Huntington’s disease. Ovation successfully leveraged its neurology sales force to launch Xenazine in the U.S. and further establish its credibility and critical mass as a neurology specialty company.

Overall from 2002 to 2009, GTCR and its management partners at Ovation strategically transformed 10 separate acquisitions of pharmaceutical assets into a neurology-focused biopharmaceutical company with an excellent commercial platform and a portfolio of clinically unique drugs targeting largely unmet medical needs. In February 2009, after a robust sale process, Ovation announced an agreement to sell the company to Lundbeck, an international pharmaceutical company.