Hyderabad's Aurobindo in race to buy Novartis' generic dermatology business

Places a non-binding initial bid of $1.6 bn for the US assets; analysts feel Aurobindo's bid is aggressively placed for low-margin assets

After Ahmedabad's Torrent Pharmaceuticals dropped the idea to acquire Sanofi's European generic business last month, Hyderabad-headquartered Aurobindo Pharma is in the race to buy the dermatology generics drug business of Novartis AG for about $1.6 billion. 

If the deal goes through, this would be the biggest overseas acquisition by any Indian drug major since Lupin's acquisition of Gavis Pharma and Novel Laboratories for $880 million in 2015. 

Media reports suggested that Aurobindo had submitted an initial bid to buy Swiss drug major Novartis AG's generic dermatology assets, which includes dermatology brands, production facilities and other infrastructure (primarily in the US). Sale of the dermatology generics business (under the Sandoz brand) is part of Novartis' plan to exit some of its not-profitable businesses.

India Infoline (IIFL) said, "Novartis was expecting $1-1.5bn for this business and it looks like Aurobindo’s bid is aggressively placed." Aurobindo Pharma could not be immediately reached for a comment. 

Analysts feel that Aurobindo has placed an aggressive bid for low margin assets. IIFL said, "Aurobindo has operating margins more than 23 per cent. We believe that Sandoz’s dermatology business could have margins less than 16 per cent, and hence, the deal would be margin dilutive. It also seems that Aurobindo has placed an aggressive bid for the low margin assets." 

Apart from the Hyderabad based company, some private equity firms and other drug companies too have shown interest in Novartis' assets. The last date for placing the bids is June 15. 

IIFL further highlighted that in Q1CY18, Sandoz had reported a sale of $2.6 bn, up 3.6 per cent year on year (YoY) as higher volumes offset the fierce pricing pressure in the US. "Sandoz reported a strong improvement in profitability with 210 bps yoy improvement in the operating margins to 16.2 per cent in Q1CY18," IIFL said 

Novartis has grown its dermatology business through acquisitions - Fougera Pharma in 2012 (a generic skin medications company) for $1.53 bn and AmLactin skincare brands from Upsher-Smith Laboratories in 2017. 

Meanwhile, Aurobindo Pharma is also building its generics business through the inorganic route - it acquired the commercial operations of Actavis in Western Europe in 2014 and last April it completed the acquisition of Generis Farmaceutica SA in Portugal.