Aurobindo says won’t buy Mallinckrodt’s biz

Hyderabad-based Aurobindo Pharmaceuticals has decided to drop its plan to buy speciality generics business of British drugmaker Mallinckrodt in the US after reviving talks with the company in March. The deal, estimated at $800-900 million, could be one of the largest outbound acquisitions made by any home-grown pharma firm. Another Indian firm, Intas Pharma had opted out earlier. Aurobindo was in talks with Mallinckrodt last year, but eventually disengaged. Aurobindo’s management decided against the deal on multiple parameters. “One reason was the valuation and they were not comfortable with the negotiation. The Aurobindo team was also not happy with the legal tussle that it would have to inherit as a part of the deal. Finally, the issues with taxation,” said a source. An e-mail sent to Aurobindo did not elicit any response. In an earnings call earlier this month, when asked about any merger and acquisition plans in the opioid space, N Govindarajan, managing director of Aurobindo, had said, “We did look at something but we have decided not to go ahead with the opportunity.” Opioids are a class of drugs that contain opium and are primarily used as painkillers. Aurobindo was looking to insulate itself from various existing lawsuits (environment related, etc) that Mallinckrodt was involved with. Mallinckrodt is one the leading manufacturers ofmedicinal-controlled substances, including fentanyl, hydromorphone, etc. A controlled substance is generally a drug or chemical whose making, possession, or use is regulated by a government. Mallinckrodt’s portfolio that was up for sale included opioidbased painkillers. Thanks to the crackdown of the US government on opioid addiction, drugmakers who handle such portfolios are under increased scrutiny. Edelweiss, in its report, had said, “There are more than 500 lawsuits against the company (Mallinckrodt) due to opioid misuse.” On top of that, an annual surcharge on opioid makers and distributors has been imposed in New York. While Mallinckrodt’s portfolio of controlled substances made it a lucrative target, as the entry barriers in this segment are high, it also brought in regulatory challenges. A source said Aurobindo’s interest in Mallinckrodt, which is on the block since March 2017, stemmed from the fact that the latter had received onethird of the US Drug Enforcement Administration quota for manufacturing controlled substances in the US in 2017 and also has its own active pharmaceutical ingredient manufacturing capability. Controlled substances constituted 5 per cent of Aurobindo’s US revenues and generate an Ebitda (earnings before interest, taxes, depreciation, and amortisation) of $40 million. “Through the acquisition, Aurobindo would have got two manufacturing facilities as well as a niche product portfolio that would have otherwise taken a decade to build organically,” said the source. The portfolio, however, has been under pressure. The business had declined by 25 per cent in the past oneand-a-half years. Regulatory challenges pushed down the valuation as well. Mallinckrodt had expected to fetch $2 billion for the generics business when it was put on the block in 2017. Aurobindo was looking to acquire it for $800 million or so. The US business contributes 44-45 per cent of Aurobindo’s total turnover.