Aurobindo says it can make the loss making European generics operations it is buying from Actavis profitable by combining them with its production network in India.
The firms confirmed the €30m ($41m) sale last week, explaining that Aurobindo will buy Actavis’ infrastructure in France, Italy, Spain, Portugal, Belgium, Germany and the Netherlands, as well as products, marketing authorizations and license rights.
The deal also includes a supply agreement, specific of which were not disclosed.
The units Aurobindo is buying are loss making, however, in a statement to the Bombay Stock Exchange (BSE) the Indian firm said it believes it can turn them around by melding them with its existing manufacturing capabilities.
“Although these businesses are currently loss-making, Aurobindo expects them to return to profitability in combination with its vertically integrated platform and existing commercial infrastructure.”
Neither firm responded to requests for information about how the deal would impact Actavis employees at the manufacturing sites, which include packaging facilities in the Netherlands and Germany and an injectable drug plant in Italy.
Actavis Pharma president, Oli Olafsson said: “We believe that the value created by the commercial operations in these seven markets will be better maximized by Aurobindo, which will gain scale, additional products and enhanced competitive market share position as a result of this transaction.”
He added that: "This transaction will permit Actavis to focus management time and resources to support accelerated investment in driving faster growth of other markets, including Central and Eastern Europe and Southeast Asia."
Deployment of capital
Confirmation of the Aurobindo deal – which must still be approved by competition authorities around the world – comes just days after Actavis CEO Paul Bisaro said would shed its commercial operations in Europe.
He told analysts at the JP Morgan Healthcare Conference that: “We decided that we were undersized in some of the Western European markets…and our choices were to further invest by buying additional companies or to exit those commercial markets.”
“The rational was to pick the markets in which to employ our capital that have the highest growth potential” Bisaro added.
One market unlikely to see any of the capital the Aurobindo deal has freed-up is China, which Bisaro said is “too risky” a place for the generics firm to invest further at this point.
“It is not a business friendly environment,” Bisaro said, adding that “If we’re going to allocate capital, we’re going to do so where we can get the most amount of return for the least amount of risk. And China is just too risky.”