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Aurobindo exits Mallinckrodt’s acquisition

As per media sources, Aurobindo Pharma has dropped the plans to acquire Mallinckrodt’s speciality generics business in the US. The deal was rumoured in July2018 and deal price was estimated to be ~$800mn.

Aurobindo Pharma was interested in buying Mallinckrodt’s generics business in 2017 but had dropped its plan in September 2017.

Mallinckrodt is a UK based company and its speciality generics business contains lucrative high entry barrier business of controlled substances i.e. Opioids, in the US. This speciality generics business is estimated to be in between $700-800mn in 2017 but has seen a decline of 25% over past couple of years.

At the rumoured price, the deal could have been ~1x EV/Sales, while on EV/EBITDA it could have been 8-9x. The regulation surrounding the controlled substances, could have led Aurobindo to drop its plans. The US President Donal Trump has declared opioid addiction, a public health emergency, due to which, opioid makers are under scrutiny.

In our opinion, this is a positive development for Aurobindo as generic pharma companies are already in pressure due to regulatory pressure and increased competition. The company could have faced additional scrutiny in a business which is also declining.

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