Kos/Biovail: How a Mid-Cap Can Win in Primary Care

Specialty pharmas have largely built their businesses through buying under-marketed niche drugs at a discount and then promoting them in a targeted fashion to their specialist audiences. Kos Pharmaceuticals Inc. and Biovail Corp. both expanded the model to include primary care products. Biovail failed; Kos—at least so far—has succeeded, indeed profiting from Biovail's failure. Last month Kos took over three of Biovail's hypertension drugs plus most of its associated sales force, paying the struggling Canadian group just 1.4 times 2004 sales—or roughly a fifth of what Biovail had paid for the same products less than five years ago. [See Deal] "The deal's a steal," remarks SG Cowen & Co. managing director and analyst Ian Sanderson.

More importantly, though, it draws attention to why the two companies—similarly sized, and, until recently, with a similar business model—have...