Sandoz and Aurobindo Terminate $1 Billion Asset Deal Following FTC Disapproval

Compiled by Keke

Antitrust Review Blocks $1 Billion Drug Asset Deal That Would Have Created the Second-Largest Generic Drug Manufacturer in the United States

On April 2, Novartis issued a brief statement announcing the termination of the cooperation agreement to sell Sandoz’s U.S. generic oral solid and dermatology businesses to Aurobindo Pharma USA Inc. The reason cited was that the transaction had not received approval from the U.S. Federal Trade Commission (FTC) within the expected timeframe.

Recently, a Novartis spokesperson told the FiercePharma website that terminating this transaction would not involve any additional fees, and updates on the Sandoz business would be provided when the first-quarter announcement is released on April 28.

In September 2018, Novartis announced that Indian pharmaceutical company Aurobindo Pharma would acquire the U.S. dermatology and generic drug assets belonging to its Sandoz division for $1 billion. The transaction involved approximately 300 products, including topical antibiotics, gynecological and dermatological antifungals, anti-acne medications, topical anesthetics and analgesics, antipruritics, and dermatological chemotherapeutic agents. The portfolio of oral non-dermatological products covered treatments for autoimmune diseases, oncology, and hormone therapies. Additionally, approximately 750 employees and medical representatives associated with the Pharmaderm dermatology brand were transferred to Aurobindo. Novartis initially expected the deal to close in 2019, but U.S. antitrust review caused significant delays in its completion.

It is reported that Aurobindo was the only company in India at the time to bid for Sandoz’s products. When announcing the transaction, N. Govindarajan, Managing Director of Aurobindo, stated that the acquisition of these products aligned with the company’s strategy to expand and diversify its business in the United States. In addition to the pharmaceutical assets, Aurobindo also intended to acquire Novartis’s manufacturing facilities located in Wilson, North Carolina; Hicksville, New York; and Melville, New York.

In February this year, the U.S. FDA approved Aurobindo’s new drug application for Trazodone Hydrochloride Tablets, indicated for the treatment of major depressive disorder. Additionally, the FDA recently approved the company’s Oxycodone Hydrochloride Oral Solution for the management of severe pain requiring opioid analgesics, as well as Methotrexate Tablets for multiple indications, including the treatment of severe, active rheumatoid arthritis, choriocarcinoma, chorioadenoma, and hydatidiform mole.

According to LiveMint, if a deal with Sandoz is reached, Aurobindo will become the second-largest generic drug company in the United States, trailing only Teva, based on the number of prescription drugs. Meanwhile, the transaction will also propel the Indian pharmaceutical company to become the second-largest dermatology company in the U.S., capable of producing both generic and branded dermatological products. Aurobindo had previously announced this goal after successfully winning the bid.

On the other hand, this transaction was also “carefully planned” for Novartis. When Vasant Narasimhan took over Novartis in 2018, he initiated significant business adjustments, selling a portion of its joint venture healthcare enterprise with GlaxoSmithKline for $13 billion and spinning off its Alcon eye care division into an independent company. Subsequently, Novartis reached a sale agreement with Aurobindo Pharma. At that time, Novartis planned for Sandoz to focus on its portfolio in the United States, dedicating more time and resources to providing complex generic drugs, value-added medications, and biosimilars to American patients.

Previously, Reuters reported that the business of Novartis’s Sandoz division had long been a major challenge for the company, with pricing pressure undermining its overall performance and serving as the primary reason for the division’s reduced growth targets.

Vontobel analyst Stefan Schneider commented on the transaction: “Price pressure in the U.S. generic drug market has been greater than expected. Sandoz’s generics business generated $1.5 billion in revenue in 2017, but only $600 million in the first half of 2018.”

In 2019, the U.S. generics business once again “dragged down” Sandoz, with full-year sales increasing by only 2% year-on-year, as price erosion in the United States led to a 6-percentage-point decline. Excluding the U.S. operations, Sandoz’s net sales grew by 7% on a constant-currency basis. Earlier this year, Novartis projected that the Group’s total sales in 2020 would grow in the mid-to-high single-digit range, but its portfolio did not include any items related to Aurobindo. This may already factor in the possibility of an unsuccessful transaction.

Furthermore, there may be more hidden details surrounding the termination of this transaction. According to a previous report by India’s The Economic Times, in the second half of 2019, the U.S. Federal Trade Commission (FTC) requested Aurobindo Pharma to provide additional information regarding the legal lawsuits it was facing, thereby further delaying the acquisition.

Sources familiar with the matter revealed that this Indian pharmaceutical company was accused of being one of 20 drugmakers involved in a fabricated scheme to manipulate drug prices, which constituted "the largest cartel case in U.S. history." A cartel refers to an alliance formed by independent enterprises producing similar products, where agreements are made on product pricing, production volume, and sales to raise prices and control output, with the aim of monopolizing the market and securing substantial profits.

In a conference call in early February this year, Swami Iyer, Chief Financial Officer of Aurobindo USA, stated, “The Company believes it has provided all the documents requested by the FTC and hopes to complete all transaction-related work in the first quarter.” However, this target was once again missed.

Antitrust Review Becomes Key to Success or Failure of Multiple Deals in Biopharmaceutical TransactionsIn transactions involving biopharmaceutical companies, antitrust review has become a critical factor determining the success or failure of multiple deals. For instance, Roche’s $5.1 billion acquisition of Spark Therapeutics faced repeated delays; Celgene was compelled to divest its blockbuster psoriasis drug Otezla to secure regulatory approval for its merger with Bristol Myers Squibb (BMS); and antitrust concerns directly led to the collapse of Illumina’s proposed acquisition of Pacific Biosciences, a smaller producer of DNA sequencing instruments. More recently, the merger between AbbVie and Allergan also experienced delays. The two companies have signed an agreement with the U.S. Federal Trade Commission (FTC) to divest the experimental inflammatory bowel disease drug brazikumab and two pancreatic enzyme replacement products, thereby removing antitrust obstacles. They also reached undisclosed concessions with the European Union. Nevertheless, the transaction remains under review by both the U.S. FTC and the Department of Justice.

Reference Source:

1、After Failing to Gain FTC Approval, Sandoz and Aurobindo Call Off $1 Billion Deal

2、Novartis announces mutual agreement to terminate sale of Sandoz US generic oral solids, dermatology portfolio to Aurobindo