Novartis to sell some parts of Sandoz business in US to Aurobindo for $900 million

Novartis announced Thursday that it agreed to sell certain parts of its Sandoz unit in the US, including the dermatology business and generic oral solids portfolio, to Aurobindo Pharma for $900 million in cash. The transaction, which is expected to close next year, also comprises $100 million in potential earn-outs.

According to Novartis, the deal supports its strategy of focusing Sandoz "on complex generics, value-added medicines and biosimilars." Richard Francis, CEO of Sandoz, remarked "we are refocusing our business, but also striving to ensure continuity of supply of important long-used generic medicines for patients and customers in the US."

The portfolios to be sold to Aurobindo include around 300 products, as well as additional development projects, with sales in the first half of the year reaching $600 million. Novartis noted that the transaction includes the Sandoz US generic and branded dermatology businesses, as well as its dermatology development centre, along with manufacturing facilities in Wilson, North Carolina and Hicksville and Melville, New York.

In July, Novartis CEO Vas Narasimhan said that the company is evaluating a number of options for the Sandoz business in the US, where the unit has been hit by price erosion and rising competition. The executive indicated at the time that it was considering divesting parts of the operations or some of its products, as well as mulling buying in or investing in other medicines.

Novartis added that under the deal, around 750 employees in Hicksville, Melville, Wilson and Princeton, New Jersey, as well as the field representatives for the PharmaDerm branded dermatology business, will transfer to Aurobindo upon closing. Aurobindo noted that following the acquisition it "would become the second largest generic player in the US by number of prescriptions." Managing director N. Govindarajan remarked "acquiring these businesses from Sandoz will allow us to further expand our product offering and to become a leading player in the generic dermatology market."

Commenting on the transaction, Haitong analyst Rakesh Nayudu cautioned that the oral solids and dermatology businesses will see progressive pricing pressure, although he noted that the deal value looks very accretive and due to Aurobindo's own manufacturing base in India, the company should be able to extract cost synergies. Meanwhile, analysts at Kotak Institutional Equities suggested that Aurobindo is well positioned to gain volumes in US orals and injectables. "We believe the market has been largely ignoring Aurobindo's superior execution in the US, as demonstrated by its consistent scale-up in the market despite broader pricing pressure," the analysts added.

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