Australian company TFS Corporation Limited (TFS), a producer of Indian sandalwood oil, is to acquire its U.S.-based pharmaceutical partners ViroXis Corporation and Santalis Pharmaceuticals.

The company said on Thursday that it had agreed to pay a combined minimum price of $23.4 million in cash and shares in a deal that will extend its vertically integrated business model.

"TFS will benefit from direct ownership of the pharmaceutical companies which exclusively develop and sell products containing TFS-grown and processed Indian sandalwood oil to the high-value pharmaceutical sector," commented TFS chief executive officer Frank Wilson.

ViroXis and Santalis are well advanced in the formulation, testing and commercialization of various dermatology products containing TFS pharmaceutical-grade Indian sandalwood oil, including the Benzac products that were launched by Nestle-owned Galderma earlier this year.

"While TFS previously benefited from pharmaceutical product development through oil sales, with these acquisitions we will also capture all of the future product earnings, including product royalties and license fees, generated by ViroXis and Santalis, thereby significantly enhancing our own earnings," Wilson said.

The total consideration paid by TFS is directly linked to ViroXis and Santalis successfully developing and selling additional pharmaceutical products to the healthcare market.

The purchase price will rise to as much as $244.9 million if all milestones are met in the eight years after completion.