OVATION Pharmaceuticals, Inc.
2010 Portfolio Company of the Year
 

OVATION Pharmaceuticals, Inc.                                                        


Management:  Jeffrey S. Aronin, Founder, President and Chief Executive Officer
Venture Capital Partner:  GTCR Golder Rauner, LLC, since 2002 

Founded in 2000, OVATION Pharmaceuticals, Inc., already ranks among the world’s fastest-growing biopharmaceutical companies. The fully integrated company owes much of its rapid expansion to its venture-capital partner, GTCR Golder Rauner, which in 2002 committed $150 million in it, considered one of the largest such investment received by an early-stage pharmaceutical firm. This wasn’t a traditional venture deal or buyout transaction, but GTCR saw the opportunity to arrange a unique partnership. 

GTCR is a leading, 26-year-old private equity-investment firm based in Chicago that manages more than $4 billion of equity capital invested in a wide range of companies and industries. It was one of the early pioneers of identifying and partnering with exceptional executives to build leading companies through a combination of acquisition and strong internal growth. 

GTCR’s financing allowed the Deerfield-based OVATION to get off to a fast start by allowing the company to acquire drugs from other pharmaceutical companies and, thereby, give OVATION a base of products to sell. GTCR’s very large commitment was key to OVATION’s early success as it demonstrated to large pharmaceutical companies OVATION’s ability to close a transaction. Certainty is key to these companies and they wouldn’t allow OVATION to start due diligence without the funding. 

OVATION’s initial goal was to acquire enough drugs to generate $100 million of revenues. Since then, OVATION has gathered 20 pharmaceutical drugs, both approved and in development, and a product line now sold in more than 85 countries. It also maintains a late-stage pipeline of central nervous-system drugs that ranks among the most robust in the industry and is expected to deliver four new product launches over the next five years. 

OVATION by the Numbers

  • 14 medicines serve people in more than 85 countries.
  • 6 medicines are in development.
  • 5 new U.S. product launches expected in the next 5 years to treat serious neurological ills.
  • Sales have grown at least 50 percent a year.


Founder and Chief Executive Officer Jeffrey Aronin identified the potential in acquiring so-called “orphan drugs,” underpromoted medicines that larger pharmaceutical companies were willing to unload so they could promote their blockbuster drugs. OVATION’s roster of pharmaceuticals include Chemet®, used to treat lead poisoning; NeoProfen®, for treating a potentially life-threatening congenital heart defect in premature infants, and Panhematin®, for a rare blood disorder. 

Underscoring its progress in advancing its central nervous-system development pipeline, OVATION in September 2007 said a pivotal Phase III clinical trial had begun that evaluates clobazam, an anti-convulsant drug for treating patients with Lennox-Gastaut syndrome, one of the most severe forms of childhood epilepsy that frequently persists into adulthood. And in July 2007, it initiated a clinical trial to evaluate a novel intravenous formulation of carbamazepine – a widely used oral antiepileptic drug – in adult patients with epilepsy. The launch of another oral anticonvulsant for rare and refractory epilepsies is anticipated in 2008. Besides the central nervous system, OVATION also is focusing on hematology/oncology and hospital-based therapies. 

Indeed, OVATION’s record in acquiring products has helped it become known within the industry as a “partner of choice” when a drug company is divesting products. In a brief time, OVATION acquired 16 products through five separate transactions with Abbott, Aventis, Lundbeck, Sanofi-Synthelabo and Merck. And its venture-capital arrangement makes it easy to execute promising transactions expeditiously. Still, the company now is putting significant focus and resources on product development and, while it continues to look for new products to buy, that search is less urgent. 

Proven Managers Help
Several factors drew GTCR Golder Rauner’s interest in OVATION besides its unique interest in acquiring underpromoted medicines from Big Pharma. Its leadership “team” is a central factor. The company has placed proven industry executives in the leadership role of each facet of its structure and also uses the services of experienced advisers. In addition, it has developed an experienced and proven team of scientists and clinical experts who have worked with the Food and Drug Administration to drive its drug-development efforts. Further, its commercial management team and sales force are experienced, especially in the central nervous system, hospital and oncology channels, where two experienced and trained field organizations help grow sales.

OVATION’s executive chairman, Wilbur (Bill) Gantz, symbolizes the company’s deep management strength. Before joining the company, he was chairman and CEO of PathoGenesis Corp., a publicly traded biopharmaceutical company that developed and marketed novel medicines to treat serious and chronic human-infectious diseases. He sold the business to Chiron Corp. in September 2002. Previously, he was president of Baxter International Corp., where he spent 25 years and held a number of senior leadership posts, including chief operating officer.

OVATION’S Equity Capital by the Numbers 

  •  GTCR committed $150 million in 2002, one of the largest such investments.
  • 2 GTCR executives on OVATION’s 5-member board.


Other senior executives gained experience at Big Pharma, including Johnson & Johnson, Warner Lambert/Parke-Davis, Abbott Laboratories, Bristol-Myers Squibb, Pharmacia/Searle, Agouran/Pfizer Laboratories and Takeda Pharmaceuticals.

A Strong Business Model and Vision 
OVATION also has benefited from a strong strategic business model and vision. Its executives recognized that the company needed to buy an early lineup of medicines that could help it reach $100 million of sales relatively quickly. Its initial roster of eight-to-10 drugs did just that as the company increased sales of each of those products. They also knew they would need a flow of new products in the 2008-2010 period; these products also would have to represent medicines with significant growth potential. 

The company reduced its business risks by deciding not to start out with drugs in the pre-clinical-trial stage because the time to market would be lengthy. Instead, it looked for products that already had been approved in other markets (primarily Europe); having approval ensured the products worked and were safe. The company would just have to duplicate selected trials in the United States for them to be approved the FDA.

OVATION also focuses on niche markets as part of its strategy. As a result, it spends less on sales and marketing than typical pharma companies – 10 percent or less compared to 35-40 percent – by targeting the specialists in the product areas. Further, patients with serious diseases where there are few, if any other, treatments understand they must obtain those drugs and can usually justify their cost to their insurers. 

As for OVATION’s growth, Mr. Gantz says its sales have grown 50 percent a year. The company doesn’t release annual sales figures. But Entrepreneur magazine, in placing the company as No. 12 on its 2005 list of the 100 fastest-growing new companies, said OVATION’s 2004 sales were $38.8 million. And the company says that its five-year compound annual growth rate in revenue and cash flow has exceeded 100 percent. One can simply wonder what the company’s new-product pipeline will contribute in further expanding and improving its financial results.

As for its Illinois home base, Mr. Gantz praises the wealth of management talent in the Chicago area in particular that can be tapped – experienced individuals who have done a lot of research and been through the tough FDA approval process. This talent strength reflects the large number of pharmaceutical companies in the area. 

In February 2009, Ovation announced an agreement to sell the Company to H. Lundbeck A/S (“Lundbeck”), an international pharmaceutical company, in an all cash transaction valued at $900 million. Under the terms of the transaction, Lundbeck made an upfront payment of $600 million upon closing and paid the remaining $300 million a few months later upon FDA approval of Sabril, a drug in Ovation’s development pipeline. Total proceeds to GTCR from its investment in Ovation were $679 million (~7.0x GTCR’s $97M investment, or a 62% IRR).