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Aurobindo buying Novartis unit Sandoz’s businesses in biggest outbound pharma deal
Photo Credit: Shah Junaid/VCCircle

Aurobindo Pharma Ltd has agreed to purchase Novartis AG unit Sandoz Inc.’s US dermatology and generic pills business for as much as $1 billion in the biggest overseas acquisition by an Indian drugmaker.

The Hyderabad-based company said in a statement on Thursday it will pay $900 million (about Rs 6,470 crore) in cash for the acquisition of about 300 products, three manufacturing facilities in the US and Eon Labs Inc., a wholly owned unit of Sandoz. The deal also involves potential earn-out payments of $100 million on products in the pipeline, Novartis said in a separate statement.

The transaction trumps Lupin Ltd’s 2015 acquisition of US-based Gavis Pharmaceuticals and Novel Laboratories Inc. for $880 million (Rs 5,610 crore) and Intas Pharmaceuticals’ 2016 purchase  of the assets and operations of Actavis Generics in the UK and Ireland from Teva Pharmaceutical Industries for $769 million.

“Overall, the transaction will position Aurobindo as the second-largest dermatology player and the second-largest generics company in the US by prescriptions,” said N Govindarajan, managing director at Aurobindo Pharma.

Israel’s Teva is the largest generics drug company in the US while Aurobindo and Sandoz are currently ranked fourth and fifth, respectively, according to healthcare research firm IQVIA. Canada’s Valeant Pharmaceuticals, which changed its name to Bausch Health Companies Inc in March, is the biggest dermatology player in the US, according to the IQVIA data disclosed by Aurobindo.

As for Novartis, the sale is part of its plan to focus on higher-growth areas. The transaction will help Sandoz focus on complex generics, value-added medicines and biosimilars to achieve profitable growth in the US, Sandoz CEO Richard Francis said.

The debt-free and cash-free transaction is likely to close next year, subject to clearance from the United States Federal Trade Commission. The net sales of the acquired business were around $1.2 billion for 2017. However, Aurobindo said the estimated net sales from the business for the first 12 months after completion of the deal will be around $900 million. This doesn’t factor in any potential divestment that the US regulator may require the company to do.

Still, the acquired business will account for more than a third of Aurobindo Pharma’s total revenue. The company’s consolidated revenue from operations stood at Rs 16,499.84 crore for the year through March 2018, up from Rs 15,089.86 crore the year before.

About 750 employees and the field representatives for the PharmaDerm branded dermatology business will transfer to Aurobindo as part of the deal, Novartis said in its statement.

Jefferies International was the financial adviser to Aurobindo Pharma on this transaction. Morgan, Lewis & Bockius LLP was the legal adviser.

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