$10 Billion Buyout: Will This Acquisition Be a Game Changer for Sun Pharma?

Synopsis: Sun Pharma is reportedly exploring a ~$10 billion acquisition of US-based Organon to expand its US presence, leveraging Organon’s $1.6 billion quarterly revenue, $660 million biosimilars business, and women’s health portfolio.

This company is engaged in the business of manufacturing, developing and marketing a wide range of branded and generic formulations and Active Pharma Ingredients (APIs) is now in the spotlight after it is considering to acquire US based firm Organon.

With a market capitalisation of Rs. 3,89,162 cr, the shares of Sun Pharmaceutical Industries Ltd closed at Rs. 1,622 per share, down by 3.08% from its previous close of Rs. 1,673.55 per share.

Consideration of Mega Cross-Border Acquisition

Reports have emerged claiming that Sun Pharmaceutical Industries Ltd, India’s largest pharmaceutical manufacturer as measured by market capitalization, has initiated a search for potential acquisition targets within the USA. An acquisition request has been submitted regarding Organon. 

This potential purchase may be worth approximately $10 billion. If this acquisition were to happen, it would rank as one of the largest cross-border acquisitions in the pharmaceutical industry made by an Indian entity. The planned deal illustrates Sun Pharma’s ambition to expand its global reach in regulated markets such as the United States.

Expansion Strategy for the US Market

Organon has established itself as a leader in women’s health and biosimilars within the USA and thus represents a logical addition to the current footprint of Sun Pharmaceuticals USA (SunUSA). A purchase will enable Sun Pharmaceuticals to create additional revenue streams through its current branded and specialty medicines while diminishing reliance on off-patent/generic medicines. As such, a successful negotiation between Organon and Sun Pharmaceuticals, if it occurs, will expedite Sun Pharmaceuticals’ transformation into creating complex and differentiated therapies.

Financial Snapshot and Market Position of Organon

In 2021, Organon was formed as a spin-off from Merck. Organon has been responsible for $9.5 billion in debt, but its total debt has refocused to approximately $8.9 billion. For Q3 FY25, Organon reported revenue of $1.60 billion. Organon’s stock has decreased significantly from a post-listing price of $17–18 to around $8.76 at this time. This decrease may provide attractive valuation opportunities for an acquirer with experience in restructuring distressed companies, as Organon is under market pressure.

Sun Pharma’s Balance Sheet Capability and Acquisition Possibilities

Sun Pharma has a solid position in any potential transaction with minimal net debt of around Rs. 2,362 crore and cash reserves of around Rs. 20,000 crore. Thus, through their financial strength, they are well-positioned to engage in a transformational acquisition while adhering to proper financial discipline and are a proven turnaround organization, completing successful acquisitions of Taro Pharmaceuticals and Ranbaxy and integrating and returning these companies and their assets to profitability.

Expansion Potential for Biosimilars and Women’s Health

The biosimilars market, which generates approximately $660 million in sales for Organon, gives Sun Pharma a foothold in a rapidly expanding yet less saturated area of the US pharmaceutical industry. Organon also has an established line of women’s health products such as Nexplanon (contraceptive) & Nuvaring (fertility/hormonal therapy), from which to benefit long-term due to their established brand names, market presence, and pricing power (the ability to set prices based on demand rather than manufacturing cost).

Collaborative Strengths in Research & Development

Both companies have compatible R&D strengths. Organon’s foundational strength comes from the company’s association with Merck and its development work on future blockbuster drugs through its ownership of the rights to early patent filings for Keytruda and other large compound/biologic medicines. 

In turn, Sun Pharma has been actively building up its specialty and innovation pipelines through strategic acquisitions of Checkpoint Therapeutics ($416M) for its oncology platform, and Concert Pharma ($576M) to enter the market with an alopecia product. The ability to combine the areas of expertise into one R&D ecosystem has the potential to accelerate new product launches and support continued growth through innovation.

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