Rs 2,000 crore Novartis deal to help Sun Pharma rise in Japan

MUMBAI: Sun Pharmaceutical, India’s largest drugmaker by sales and market value, is in advanced talks to buy a portion of Swiss drugmaker Novartis’ portfolio of old branded products in Japan in a deal estimated at $300 million (about Rs 2,000 crore), executives familiar with the discussions have told ET. A deal, if consummated, will help Sun gain a beachhead in the world’s second-largest medicines market for its specialty dermatology drugs and its portfolio of mostly generic medicines.

With sales of $90 billion a year, Japan, an extremely brand-conscious pharma market, ranks next only to the US in value of medicines consumed. ET NOW was the first to report about the possibility of a deal on Friday afternoon.

Sun is hopeful of wrapping up the process by December, the people familiar with the discussions said. The company did not respond to ET’s queries. Novartis said it does not comment on rumours or speculation.
Earlier this year, Sun Pharma integrated its operations with Ranbaxy, the erstwhile top Indian drugmaker that it acquired in April 2014 in a $4-billion deal. Last week, the company, which is controlled by billionaire and India’s second-richest man Dilip Shanghvi, completed a $48-million buyout of Insite Vision in the US.

The Mumbai-based drugmaker, which has over the years acquired global scale through a string of acquisitions, has focused heavily on building a specialty dermatology portfolio, which experts believe can benefit from the marketing expertise that will be available through Novartis’ products.

The discussions between Sun Pharma and Novartis, according to people privy to the matter, pertain to hiving off a handful of the Swiss firm’s older products that are already off-patent or are nearing patent expiry. Once a medicine is off patent, its pricing power in the market drops as it becomes vulnerable to competition from cheap copycat drugs.

While the products on the list could not be immediately ascertained, experts said the products may be those that are seeing a gradual drop in the reimbursement price paid by the Japanese authorities. “Insurers are increasingly preferring newer drugs when it comes to reimbursements,” a senior industry executive said, reasoning that it could be the reason why Novartis could be looking to exit its older products.

For Novartis, these older products may be of low interest as the company has ramped up global sales in the past few years backed by a slew of new approvals. Sun, which has in the past earned a global reputation by snapping up companies at distressed value, will pay the full value for the Novartis brands this time, one of the persons told ET.

JAPANESE MARKET HOLDS PROMISE

For Indian generics firms, the Japanese market holds a lot of promise, but among major Indian drugmakers only Lupin has established a successful business there. However, its growth rates have come off the highs of the past two years. Other Indian drugmakers, notably Dr Reddy’s, too have attempted to crack the Japanese market, but haven’t been successful because of a stringent and slow regulatory approval regime.

The Japanese government has set a goal to double the use of generic drugs to up to 80% of the generated prescriptions.

A deal with Novartis may help Sun Pharma offset some of the headwinds it is facing in the US. The company has lately had to contend with adverse remarks from the US drug regulator about its Halol manufacturing site.

For the second quarter of the year, Sun Pharma, which draws over half of its annual revenues of $5 billion from the US, reported lower than expected sales and profit. In an alert in July, the company indicated that it may sell some of its non-core assets and warned that the year may see flat sales. The company said it expects to return to a sustainable growth trajectory only after the current fiscal year.