Novartis Buys 2 Big Generic Drug Companies
Novartis is acquiring two leading generic drug companies that will be integrated into the company’s Sandoz division.
Definitive agreements have been signed to acquire 100% of Hexal AG, the privately-held No. 2 generics company in Germany with a strong European presence, and a 67.7% stake (65.4% fully diluted) in Eon Labs, a fast-growing U.S. generics company that has a strategic partnership with Hexal AG, for a total of EUR 5.65 billion in cash. In addition, pursuant to a merger agreement unanimously approved by the Eon Board of Directors and the Special Committee of independent directors of the Eon Board, Novartis will launch a tender offer to acquire the remaining 31.9 million fully diluted shares (34.6%) in Eon Labs for USD 31.00 per share.
Sandoz, after the closing of these transactions, will be the global leader in generics with combined pro forma 2004 sales of USD 5.1 billion, a portfolio of over 600 active ingredients in more than 5,000 dosage forms and more than 20,000 employees.
“Generic drugs are crucial to meeting the health-care needs of patients in industrialized and developing countries as cost pressures continue to mount due to the ever-increasing demand of an aging population. As such, generic medicines are a critical complement to innovative medicines, freeing up resources and also providing an indirect stimulus to continued innovation. The acquisitions of Hexal AG and Eon Labs will significantly strengthen our geographic presence and product portfolio, our development and registration capabilities, and increase our scale to rapidly bring a broad array of generic products to patients. These acquisitions expand our medicine-based business portfolio, providing synergies with our branded medicines in dealing with large purchasers and in manufacturing. They underscore our commitment to being the industry leader in offering innovative prescription medicines, high-quality generics and self-medication products,” said Dr. Daniel Vasella, Chairman and CEO of Novartis.
Annual cost synergies totaling USD 200 million are anticipated within three years after closing, with 50% in the first 18 months. Synergies will be driven mainly by savings in production, especially in sourcing, lower processing costs and reduced Cost of Goods Sold (COGS) through vertical integration; Marketing & Sales through consolidation of back-office operations and distribution; Development through the streamlining of the project portfolio and less need for in-licensed products; and General & Administrative expenses due to the consolidation of administration and management structures. The strong growth outlook for Sandoz, which will create jobs, is expected to partially compensate for necessary reductions in the workforce.
Dr. Andreas Rummelt, CEO of Sandoz, commented, “The combination of Sandoz with Hexal and Eon Labs offers an outstanding opportunity to capitalize on the unique strengths of each company. Together, we will create a highly competitive leader with a comprehensive global presence and the expertise necessary for success in the rapidly changing generics market.”
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