Novartis unloads troubled US generics to Aurobindo; investors in Mylan, Teva unhappy

By PharmaCompass

2018-09-13

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Novartis finally got rid of some troubled US generic assets last week when it sold 300 products and several development projects in its Sandoz US generic oral solids and dermatology business to Indian drug maker Aurobindo Pharma for US$ 1 billion. Aurobindo will pay US$ 900 million upfront and up to US$ 100 million in performance payments.

The deal relieves Novartis of a troubled franchise, while catapulting Aurobindo to the position of the second-largest generics player by prescriptions in the US.

The acquisition also included some generic oral solids in autoimmune, antineoplastic and hormonal agents. The deal included three manufacturing plants and around 750 employees.

The deal with Aurobindo is part of Novartis’ effort to focus Sandoz’s US operations on higher-margin assets like biosimilars and complex generics, which would include injectables, respiratory drugs and eye therapies.

As part of the deal, Aurobindo also gets Sandoz’s dermatology development center, as well as manufacturing facilities in Wilson, North Carolina, and Hicksville and Melville, New York, which Aurobindo said are “highly complementary” to its existing production footprint.

Many drugmakers, including China’s Fosun Pharma, and several private equity buyers had reportedly evinced interest in the franchise.

In fact, investors in two other drug companies — Mylan and Teva — weren’t so happy with the deal. The reason? The US$ 900 million upfront payment reached by Novartis and Aurobindo was less than the 2017 annual revenue the portfolio sold, Wells Fargo analyst David Maris said.

“Although clearly Teva and Mylan have very different businesses than the largely commodity and dermatology portfolio Sandoz is selling, we believe some investors are looking at this as a proxy for what the commodity portions of Teva’s US and Mylan’s US businesses might be worth,” said Maris.

According to Aurobindo, the acquired portfolio brought in sales of about US$ 1.2 billion in 2017, higher than the US$ 1 billion the deal could eventually be worth if performance-related payments are added.

Due to increased pricing pressure that has wreaked havoc across the entire US generics industry, Novartis’ US Sandoz business has been suffering. Mylan and Teva face the same US pricing pressure as Novartis.

Meanwhile, Mylan finally revealed what it had bought during the last quarter for US$ 483 million.

The company had purchased Novartis’ Tobi Podhaler and Tobi liquid, two cystic fibrosis products. The company expects to pay US$ 240 million of that sum this year.

Mylan also mentioned the reason behind the secrecy. “The transaction was subject to … pre-closing confidentiality restrictions,” Mylan said in a statement.

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