Aurobindo Pharma stock jumps on acquisition of Sandoz business

Likely to enhance the firm’s product offerings, place it well in generics space in the US

The stock of Aurobindo Pharma rose as much as 9 per cent on Thursday tracking the news that the company has entered into an agreement with Sandoz Inc, USA, to acquire its dermatology and oral solids businesses.

The acquisition enhances Aurobindo’s product offerings and places it in a formidable position in the generics market in the US.

Inorganic route

This US acquisition provides Aurobindo, a market leading dermatology franchise, comprising a portfolio of generic and branded products. This deal is expected to add approximately 300 products to Aurobindo’s existing portfolio.

Over the years, Aurobindo has been adopting the inorganic route to expand and enhance its product portfolio offerings in key therapeutic areas across the globe. Its notable acquisition of Actavis’ commercial operations in 2014 in seven Western European countries brought in a pipeline of over 1,200 products from different segments and an additional pipeline of over 200 products under it.

With the acquisition of nutritional supplement maker, Natrol Inc, US, for a consideration of $132.5 million in late 2014, the company made a foray into the nutritional OTC business in the US and other international markets.

In early 2017, the company acquired the Generis group in Portugal for a total consideration of €135 million that helped the company to expand its business further in European markets. In July 2018, the company acquired Canada-based Apotex’ businesses in five East European countries for €74 million. This acquisition added 200 generics and more than 80 OTC products that had total sales of €133 million in FY18.

Challenging US environment

Despite immense pricing pressure seen in its oral solids space (that comprises around 77 per cent of US sales), the company is well-positioned to grow its revenue, going ahead, with a total 487 ANDA filings (as on June). The acquisition will enhance its pipeline with additional pipeline projects, including ANDAs that have already been filed, products under development, and first-to-file opportunities.

While many Indian pharma players are shifting their focus towards specialty products in the US due to pricing pressure in the base business, acquisition of such a business (dermatology) will help Aurobindo improve its volumes in the US.

In the medium term, growth in the US is likely to be driven by new launches, realisation in the injectable pipeline and improvement in OTC products. That there are no pending regulatory issues in its facilities is a positive.

The company has a comfortable net debt-to-equity ratio of 0.4, as on FY18.

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