Novartis yesterday bought privately owned Hexal of Germany for $8.3 billion (€6.35 billion) in cash, in a deal that establishes it as the world's biggest maker of generic drugs and sets it apart from the rest of the pharmaceuticals industry.
The acquisition of Hexal, Germany's second-largest generics company, and 67.7 per cent of its US affiliate Eon Labs is the culmination of a five-year strategy by Dr Daniel Vasella, Novartis's chairman and chief executive, to create a global business selling "copycat" versions of drugs whose patent protection has expired.
As part of the deal, Novartis will launch a tender offer for Eon Labs' outstanding shares, for $31 a share, or about $1 billion.
Novartis has two plants in the Republic, one in Co Waterford and one in Ringaskiddy, Co Cork.
The Ringaskiddy plant was established in 1989 and manufactures multipurpose bulk chemicals. In 1996, it extended its facilities to include an internal logistics and global supply chain. It employs 500. The Waterford operation, established in 1972, employs 30 and manufactures agricultural chemicals.
Novartis's strong presence in generics is unusual among big pharmaceutical firms, which have concentrated their efforts on discovering and marketing high-margin blockbuster drugs and avoided low-margin generic drugs.
However, demand for generics is growing faster than for branded drugs, as healthcare providers seek to rein in costs and some of the best-selling drugs come off patent. In addition, many large pharmaceutical companies are caught up in doubts over the safety of their heavily marketed products.
The two companies will merge into Sandoz, Novartis's Austria-based generics subsidiary, which recently outlined plans to improve product development and marketing in the face of intensifying competition.
Dr Vasella said that the deal "allows us to gain a stronger position, especially in Germany, where it has so far been very hard for us to penetrate the market".
The acquisition enabled Novartis to overtake Teva Pharmaceutical Industries of Israel as the world's largest generics company. The expanded group's annual sales will top $5.1 billion, while its pipeline contains virtually all the main drugs that are due to lose patent protection between now and 2009.
Mr Laurent Payer, a generics fund manager at Swiss bank Pictet, said growth prospects for the generics industry were higher than for big pharmaceuticals.
Novartis retains the financial flexibility to make further big acquisitions, Dr Vasella said.
These are now more likely to be in branded pharmaceuticals.
