Novartis agreed to buy German generic-drug maker Hexal and its U.S. affiliate Eon Labs for about $8. 3 billion in cash to become the world's...

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Novartis agreed to buy German generic-drug maker Hexal and its U.S. affiliate Eon Labs for about $8.3 billion in cash to become the world’s biggest maker of low-priced copies of brand-name medicines.

Novartis, Europe’s fourth-biggest pharmaceutical company, will pay 5.65 billion euros ($7.4 billion) for closely held Hexal and a 67.7 percent stake in Eon. The Basel, Switzerland-based company will start a tender offer to acquire the rest of Eon for $31 a share, or about $1 billion.

Chief Executive Daniel Vasella is seeking 10 percent of the generics market with the purchase, Novartis’ biggest since the firm was created in a 1996 merger, he said. Novartis’ Sandoz generics unit, its slowest-growing division last year, will surpass Israel’s Teva Pharmaceutical Industries in a market Vasella expects to grow to $100 billion in sales by 2010.

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“The generics area was a problem for Novartis, and with this acquisition they have resolved that problem with a quantum leap,” said Dieter Winet, a portfolio manager for Swisscanto Asset Management.

Between 2002 and 2007, pharmaceutical companies including GlaxoSmithKline and AstraZeneca will have lost patent protection on products worth an annual $82 billion in sales, according to London-based industry consultant Datamonitor. Novartis is the only firm among the world’s top 10 drug makers with a large generics business, and Vasella is expanding it after failing to make a large acquisition in branded drugs and passing up a chance to bid for France’s Aventis last year.

“The penetration of generics will continue to progress not just in the U.S. market but in Europe,” Vasella, 51, said. “We anticipate the generic industry will be a $100 billion industry by 2010, implying double-digit growth. We’re now No. 1. It’s very important to have a very strong market position.”

“The combination of having a brand business and a generics business is making more and more sense,” said David Maris, an analyst at Banc of America in New York. “Novartis is getting a strategic bargain.”

Holzkirchen, Germany-based Hexal, the world’s fourth-largest generic-drug company, was the first company to introduce a generic in the statins class of cholesterol treatments with its version of Merck’s Zocor. Hexal specializes in making proven medicines easier to use by developing prolonged-release formulations and controlled-release formulations such as skin patches.

Eon Labs sells a version of Glaxo’s antidepressant Wellbutrin and the diabetes drug Glucophage. It specializes in first-to-market and in hard-to-make generics.

Generic drugs, chemically identical to their brand-name counterparts, cost less than the originals because their makers don’t have to spend as much on research and testing. Generally, generics can be sold after the original drug’s patent expires.