Antitrust delay scuppers Novartis’ $1bn generics sale to Aurobindo

Novartis has called off the sale of two US generics businesses to India’s Aurobindo Pharma, part of a restructuring of the Swiss big pharma as it concentrates more effort on higher-margin, innovative therapies and digital health.

The sale of Sandoz’ US generic oral solid doses and dermatology products units was agreed in 2018, but has been abandoned because “approval from the US Federal Trade Commission for the transaction was not obtained within anticipated timelines,” said Novartis.

The company had predicted the deal would close in the first quarter of 2020, after previously setting a deadline of the end of 2019.

At the time the deal was announced, Sandoz said the transfer of ownership for a large business was a “complex process”, involving the transfer of 750 workers and three manufacturing facilities, one in North Carolina and two in New York.

The specifics of why the FTC approval process took so long haven’t been revealed, but an Economic Times report suggests the delay had stripped away a chunk of the cash flow benefits that Aurobindo was hoping to claim from the deal.

It also says the company’s enthusiasm for the deal was diminished by the supply chain disruption caused by the coronavirus and regulatory compliance problems at two large manufacturing units after FDA inspections.

Along with other generic drugmakers Aurobindo has come under scrutiny over price-fixing in the US market, and there are also reports that the FTC delay stemmed in part from a request for more information about an undisclosed lawsuit faced by the Indian firm.

If consummated, the deal would have created the second-largest US generics company after Teva, with Aurobindo agreeing to pay $900 million in upfront cash, plus $100 million in potential performance-based premiums, for approximately 300 products from the Sandoz portfolio.

The decision to sell came after both Sandoz units were hit by pricing pressure in the US and disappointing sales figures.

Since then, the generics subsidiary has seen some improvements financially, with a return to sales growth that Novartis chief executive Vas Narasimhan says has come from a transition to a more autonomous and leaner division within the group.

Net sales were $9.7 billion last year, up 2%, although the US remained a big drag on growth. Sandoz sales elsewhere rose 7%.

The impact of antitrust approvals in the pharma sector has become more profound in the last couple of years.

Roche’s takeover of gene therapy player Spark Therapeutics and the Bristol-Myers Squibb/Celgene merger were held up for months, for example, while AbbVie’s acquisition of Allergan is still under review at the FTC after several delays but has been cleared by the EU.