Indian pharma majors weigh bids for Sanofi’s $2 billion European generics business
MUMBAI: Homegrown Aurobindo, Zydus Cadila, Torrent Pharma and Intas have expressed preliminary interest in buying the European generics business of Paris-headquartered pharma giant Sanofi as frenzied dealmaking continues in Big Pharma the world over in the new year.
The portfolio of acute, chronic and oncology products could fetch a valuation of $1.5-2 billion, making it among the largest outbound transactions pursued by an Indian drug company, said multiple sources in the know.
Pitted against them are a top Chinese drugmaker and an array of global PE players, some of whom may tie up with strategic players.
Apax Partners, Europe's leading private equity buyout shop, is joining forces with Zydus Cadila while Intas is backed by Temasek and Chrys Capital.
At the JPMorgan Healthcare conference underway in San Francisco, Sanofi CEO Olivier Brandicourt outlined to investors plans to divest the European generics business by the end of this year as part of a strategic road map. Sanofi operates its generics business arm under Zentiva, a Czech firm it purchased in 2008.
JPMorgan, Morgan Stanley and Rothschild have been mandated to run a formal sale process. Brandicourt had first indicated in 2015 that the business may be spun off.
Non-binding Bids Due by Third Week of Jan
The mandate to find suitors for the generics business was put on the slow track as the company reviewed the viability of its manufacturing assets. But the process is being prioritised now, according to two people aware of the bidding process.
According to nine-month regulatory filings by Sanofi, as of September 2017, the generics business in Europe showed a decline of 5.9% at $685 million (574 million euros). The business is said to include some of Sanofi's biggest legacy brands such as Plavix (blood thinner to prevent heart attack or stroke) and Aprovel (anti-hypertension). In 2016, the generics business of Sanofi had sales of $957 million (802 million euros).
Confirming the plans to ET, Sanofi said the company has decided to initiate a carve-out of the generics business in Europe, which is expected to be completed by the end of 2018. "We are currently in the process of carving out the EU generics business which is a complex process. Standalone accounting and infrastructure will need to be established before we can separate it cleanly from the rest of Sanofi and you will appreciate this will take us some time," the company spokesperson said in an email statement.
Mails sent to Aurobindo, Zydus Cadila, Intas and Torrent Pharma had not elicited any response as of press time.
Top industry sources downplayed the declining sales in Sanofi's business, saying the growth potential, particularly in the East European market, makes the deal attractive.
"Work has begun to explore financing. The leverage for some Indian players is high, so accordingly they will have to work out their strategy," said an official in the know. "Intas, for example, already has a strong base in the UK and it wants to expand in the region. This is a scaled operation."
Interestingly, Intas is currently the sole contender left in fray for Mallinckrodt's generics drug business in the US, a potential $1.5-billion transaction that would give the drugmaker access to the attractive therapeutic segment of controlled substances, or opioids, that have steep entry barriers and high margins. Even then, Intas is keen to pursue the Sanofi opportunity.
Ahmedabad-based Intas is increasingly been seen as an aggressive dark horse, showing appetite to expand its global presence backed by the firepower of its financial partners. In 2016, in an audacious move, it successfully acquired Teva's generics business in the UK valued at $764 million (?5,100 crore). Intas had then outbid Aurobindo. Both Aurobindo and Intas tried to acquire the European oncology and women's health portfolio of Teva last year, but were unsuccessful.
Torrent Pharma, seen as a slow mover in auction-led bidding processes, surprised last year by bagging one of the largest deals in the Indian market. It acquired Unichem Labs' India business for Rs 3,600 crore to enter the top ranks of the Indian drug market.
Zydus Cadila has largely focused on small deals to embellish its India operations while occasionally bagging proprietary products such as the $171-million (Rs 1,164 crore) deal with US-based Sentynl Therapeutics announced around the same time last year. Apax Partners, which already owns several generics operations in Europe, will help boost the financial strength of a Cadila bid.
Although still considerably large, the $75-billion US generics market is gradually showing signs of bottoming out. So, the focus of Indian companies such as Dr Reddy's, Glenmark and Sun Pharma is slowly shifting to developing innovative products or taking up new specialty drugs.
Besides, narrowing single seller exclusivity opportunities, federal reforms that encourage competition in generic drugs, continuing challenges on manufacturing compliance and consolidation among large distributors has dimmed the growth potential for most large generics drugmakers.
"Europe is more stable from the pricing angle. Insurancedriven procurements in west European markets may not fetch high margins but the prices are not as unstable and unpredictable as in the US," said an executive who has closely followed the European markets.