Novartis finally unloads 300 troubled U.S. generics to India’s Aurobindo for $1B

Novartis has its U.S. generics sale. After shopping pieces of its troubled Sandoz business for months, the Swiss drugmaker has unloaded a big chunk—including some easy-to-copy generics and several manufacturing plants—for $1 billion to India-based Aurobindo Pharma.

While the deal relieves Novartis of a troubled franchise, it boosts Aurobindo to become the second-largest generics player by prescriptions in the U.S.

Novartis said on Thursday it is selling about 300 products and several development projects in its Sandoz U.S. generic oral solids and dermatology business to Aurobindo for $900 million upfront and up to $100 million in performance payments.

Combined, these products sold about $600 million in the first half of 2018, said Novartis, and Aurobindo estimated the drugs could turn up $900 million in sales for the first 12 months after the deal closes.

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. About 750 employees from those plants and dermatology sales reps will come aboard Aurobindo.

Novartis first floated the idea of selling the U.S. generics business late last year under then-outgoing CEO Joe Jimenez, as the unit—as did the entire generics industry—faced unrelenting pricing pressure in the U.S. That trend has only continued; for the first half of 2018, Sandoz’s sales in the U.S. were $1.4 billion, down 17% at constant exchange rates, “mainly due to continued industrywide pricing pressure,” the company said in its second-quarter report.

RELATED: Novartis announces widely expected Alcon spinoff, plus $5B share buyback, to strengthen focus on biopharma

Many drugmakers, including China’s Fosun Pharma, and several frequent generics private equity buyers had reportedly circled the franchise, with the deal sized at $1.6 billion or $2 billion, far greater than the $1 billion reported today.

The transaction is part of Novartis’ effort to focus Sandoz’s U.S. operations on higher-margin assets like biosimilars and complex generics, which would include injectables, respiratory drugs and eye therapies. It is also keeping its generics portfolios in European and emerging markets, where business is growing.

The sale also represents the latest in a series of portfolio revamps under new CEO Vas Narasimhan. Novartis said in late June that it would spin off another struggling unit, Alcon, in the first half of 2019. That followed its decision to sell off its share of a consumer health joint venture with GlaxoSmithKline for $13 billion. It's also selling off smaller pieces of business: On Thursday, Mylan said it snapped up global rights to Novartis' cystic fibrosis products for about $463 million, and Novartis recently cast off a manufacturing facility in Canada to CDMO Avara Pharmaceutical Services.

RELATED: Novartis' under-pressure Sandoz unit offloads Quebec plant to fast-growing Avara

On the flip side, Novartis’ poison could be Aurobindo’s meat. The deal is the largest outbound buyout by an Indian pharma company, noted Jefferies, which acted as the sole financial adviser to Aurobindo.

“Overall the transaction will position Aurobindo as the second-largest dermatology player and the second-largest generics company in the U.S. by prescriptions,” said N. Govindarajan, managing director of Aurobindo, in a statement (PDF). The buy is also in line with Aurobindo's goal of expanding its global business and enhancing its product offerings, said the Indian company.

While the Sandoz U.S. business has suffered from weaker sales, Aurobindo’s U.S. portfolio witnessed year-over-year growth of 18% for the 2017-18 fiscal year ended in March.

“Aurobindo, with its cost competitiveness and vertically integrated infrastructure, is emerging as a key consolidator in the generics space while others look to rationalize their portfolios,” said Jefferies.