Noven's Novel Acquisition

On Tuesday, specialty drugmaker Noven Pharmaceuticals (Nasdaq: NOVN  ) announced that it was acquiring privately held JDS Pharmaceuticals for $125 million in cash.

Noven is best known for its transdermal patch technology that has produced products like Shire's (Nasdaq: SHPGY  ) ADHD patch Daytrana, which has made Noven profitable. So this acquisition signals a switch in Noven's strategy away from transdermal patches and toward more traditional oral drugs.

As Noven said on the conference call, the primary reason for the acquisition was to get access to JDS Pharmaceuticals' pipeline compounds. The sales force of 55 that is marketing JDS Pharmaceuticals' two approved generic products is in place to ensure a rapid sales launch if those pipeline drugs can win regulatory approval in the coming years.

The main pipeline candidate in the acquisition is a non-hormonal hot-flash treatment named Mesafem that is about to begin phase 3 testing. Noven estimates that a New Drug Application with the Food and Drug Administration could be filed in 2009 if everything goes according to plan.

Whether Noven can reach its estimated Mesafem sales "in excess of $400 million" in 2012 if the product does make it to market is highly in doubt, though. This sales estimate sounds aggressive on the face of things,  considering that the drug is expected to launch in 2011 and that other drugmakers like Wyeth (NYSE: WYE  ) are also developing non-hormonal drugs for the same indication. Competition likely won't be lacking (not even counting the numerous generic and cheap hormonal treatments already approved).

Visions of becoming the next Shire, Cephalon (Nasdaq: CEPH  ) , or Endo Pharmaceuticals (Nasdaq: ENDP  ) surely cross the minds of executives of small specialty drugmakers once their products gain regulatory approval and the sales and royalty revenue start coming in. This often leads them to overpay when acquiring new products, or leads to share prices stagnating or declining if they just focus on in-house compounds.

Whether the JDS Pharmaceuticals acquisition turns out to be such a shareholder-unfriendly deal or generates more value for Noven in the long run won't be known until the Mesafem phase 3 results come out in 2009. On the surface, though, getting a self-financed sales force and a late-stage intriguing drug candidate for $125 million doesn't sound like such a bad move, even if Noven's sales projections sound a little too rosy.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.

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