Novartis becomes biggest generics producer

Novartis is pursuing its expansion in the generics market. Novartis

Swiss drugs multinational Novartis is set to become the world’s biggest producer of generic drugs, with its purchase of Germany’s privately-held Hexal.

The company will spend €5.65 billion (SFr8.75 billion) in cash for outright ownership of Hexal and a two-thirds stake in United States company Eon Labs, which will both be integrated into its Sandoz generics unit.

Novartis said on Monday that it would launch an offer to buy the rest of Eon Labs for $31.00 per share – equivalent to a total of SFr1.17 billion francs.

Both Hexal and Eon Labs are owned, directly or indirectly, by Germany’s Strüngmann brothers.

The acquisition, which should be concluded in the second half of the year, will take Sandoz past Israel’s Teva Pharmaceuticals to make it the number one generics producer worldwide.

Novartis said the deal should create cost synergies of $200 million (SFr236 million) a year within three years of the sale.

It added in a statement that the “strong growth outlook” for Sandoz should “partially compensate for necessary reductions in the workforce”.

The deal is still subject to regulatory approval in the US and Germany.

Family-owned

Hexal, the world’s fourth largest generic drugs company, is owned by Andreas and Thomas Strüngmann.

It was the first company to introduce a generic drug in the statins class of cholesterol treatments.

Santo Holding, the investment company that manages the Strüngmann’s holdings, is also the majority shareholder of Eon Labs.

Hexal had €1.35 billion in sales last year, while Eon’s turnover reached $329.5 million in 2003.

Novartis, which lost out last year in its bid to take over the French-German Aventis group which was then purchased by Sanofi-Synthélabo, has focused recently on generic acquisitions.

Over the past two years, the Swiss firm has purchased two generics producers, Canada’s Sabex for $565 million, and Slovenia’s Lek Pharmaceutical & Chemical for $1 billion.

swissinfo with agencies

Key facts

In 2004, Hexal, with a workforce of 7,000, had a turnover of €1.3 billion.
Eon Labs had sales of $431 million according to provisional figures last year and employed nearly 500 people.
The Novartis Group made a record SFr6.9 billion profit in 2004, with sales reaching SFr33.5 billion.
With the addition of Eon and Hexal, Sandoz will employ 20,000 people and sales are expected to reach SFr6 billion.

In brief

Generic pharmaceuticals are copies of drugs no longer protected by patents that can be produced at lower cost.

The price differential between the original and the copy is usually due to research and development costs.

In Switzerland, generics are often 20 per cent cheaper than the original product.

Monday’s news pushed the Novartis share price up by 2.71 per cent to SFr58.85 ($49.79) at the close of trading, up from SFr57.30 on Friday.