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Biocon Pays $3.3bn For Viatris Biosimilars Business

‘Transformational’ Deal Offers Biocon Portfolio, Pipeline And Global Presence

Executive Summary

Biocon Biologics will pay up to $3.3bn to acquire the global biosimilars business of Viatris, in a long-rumored deal that will create a vertically-integrated biosimilars giant with annual sales approaching $1bn.

After months of rumors, Biocon has confirmed that its Biocon Biologics unit will acquire the global biosimilars business of Viatris in a deal worth up to $3.3bn.

Both companies’ boards have approved the transaction, which offers India’s Biocon a substantial portfolio and pipeline as well as a direct presence in markets such as the US and Europe, along with Canada, Japan, Australia and New Zealand, creating a “unique global, vertically-integrated biosimilars leader” with annual revenues closing on $1bn. (Also see "Mylan’s Biosimilars Close In On $1bn Milestone" - Generics Bulletin, 11 Aug, 2020.)

Biocon and Viatris have for years partnered on developing and commercializing biosimilars, with rumors beginning to swirl late last year that the firms could be seeking to more comprehensively combine their businesses (see sidebar).

The announcement confirming the deal comes just ahead of Viatris reporting its full-year results for 2021 as well as an investor day setting out a longer-term roadmap for the company’s future, which had been delayed from early January amid then-unconfirmed rumors of the biosimilars merger that were at that time dismissed as speculative. (Also see "Viatris Pushes Back ‘Roadmap’ Reveal" - Generics Bulletin, 20 Dec, 2021.)

“This transaction accelerates Biocon Biologics Limited’s direct commercialization strategy for its current and future biosimilars portfolio,” Biocon indicated as it announced the deal, adding that BBL would “realize full revenues and profits from this business” while also gaining “strategic agility and operational efficiencies” from the merger.

Under the terms of the part-cash and part-equity deal – which will see Viatris receive up to $2.335bn in cash along with compulsorily convertible preference shares in BBL valued at $1bn – Viatris will “provide commercial and other transition services for an expected period of two years to ensure continuity of customer service and a smooth transition to BBL.”

Viatris will receive $2bn in cash when the transaction closes – expected in the second half of 2022, subject to certain closing conditions including regulatory approvals – and “up to $335m as additional payments expected to be paid in 2024.”

The closing of the transaction will also see BBL issue $1bn of compulsorily convertible preference shares to Viatris, “equivalent to an equity stake of at least 12.9% in the company, on a fully diluted basis.”

Meanwhile, “Viatris also will pay $50m to BBL to fund certain capital expenditures.”

“We see minimal overlap of roles in the two organizations due to the complementary nature of our teams.”

Assets acquired by BBL will include Viatris’ global commercial infrastructure in developed and emerging markets, as well as rights to all biosimilars assets including its in-licensed portfolio “and an option to acquire Viatris’ rights in biosimilar aflibercept.”

The global biosimilars business has estimated annual sales of $875m and EBITDA of $200m and is “estimated to exceed $1bn in revenue next year,” Biocon said.

Debt financing would be “supported by a larger EBITDA base (consolidation of BBL, Viatris and Serum Institute Life Sciences income streams) and future equity infusion,” the Indian firm indicated.

“The cash payment of $2bn [is] to be funded by around $800m raised through equity infusion in BBL and the remainder to be funded by debt, additional equity or a combination thereof,” Biocon specified, adding that “BBL has received expressions of interest from financial institutions for debt financing and equity commitments from existing shareholders.”

While Biocon chair Kiran Mazumdar-Shaw will continue to serve as executive chairperson of BBL, Viatris president Rajiv Malik will take a seat on BBL’s board following the transaction.

“We see minimal overlap of roles in the two organizations due to the complementary nature of our teams,” Biocon said, “thereby facilitating seamless integration of the two businesses.”

Gains ‘Comprehensive Portfolio’ And Pipeline

Biocon said the combined business would have “a comprehensive portfolio comprising its current range of commercialized insulins, oncology and immunology biosimilars as well as several other biosimilar assets currently under development,” adding that BBL “also has access to the vaccines portfolio through its previously announced partnership with Serum Institute Life Sciences.” (Also see "Biocon Finalizes Merger Between Covidshield And Biologics Business" - Generics Bulletin, 18 Jan, 2022.)

Viatris already markets a range of biosimilars around the world such as Hulio (adalimumab), Ogivri (trastuzumab), Fulphila (pegfilgrastim) and Semglee (insulin glargine), as well as the Nepexto (etanercept) biosimilar on which it collaborates with Lupin.

Viatris and Biocon are also still waiting on US approval for a bevacizumab biosimilar, after being knocked back by pandemic-related inspection delays. (Also see "Viatris And Biocon’s US Bevacizumab Hit By Indefinite Delay" - Generics Bulletin, 26 Dec, 2020.) The product has been approved in Europe as Abevmy. (Also see "Biocon And Viatris Ready To Launch EU Bevacizumab" - Generics Bulletin, 26 Apr, 2021.)

More recently, the pair received a complete response letter from the agency for their proposed insulin aspart biosimilar. (Also see "Biocon And Viatris Get CRL From FDA On Insulin Aspart" - Generics Bulletin, 10 Jan, 2022.)

Late last year, Viatris also said it had filed what was believed to be the first US biologics license application for a biosimilar to Eylea (aflibercept) with the US Food and Drug Administration. (Also see "Viatris Believes Eylea Biosimilar Candidate Is First To Reach US FDA’s Desk" - Generics Bulletin, 10 Nov, 2021.) The firm has pursued the candidate through a now largely abandoned January 2016 development, manufacturing, and commercialization agreement with Momenta, which is now a part of Johnson & Johnson.

Mazumdar-Shaw indicated that the aflibercept option agreement related to some of the pending due diligence that the company needs to do post deal signing and was expected to happen in the very near future. (Also see "Biocon’s $3.3bn Biosimilars Big Leap Also Marks Viatris’ 'Smart' Exit, Albeit Toehold" - Scrip, 28 Feb, 2022.)

“By integrating Viatris’ portfolio,” Biocon summarized, “BBL will have one of the broadest and deepest commercialized biosimilars portfolio in the industry.”

Merger Prepares Business For The Next Decade

Commenting on the merger, Mazumdar-Shaw said the “transformational” acquisition would “create a unique fully integrated, world leading biosimilars enterprise.”

“Our long-standing global partnership with Viatris has enabled us to achieve many firsts, setting new benchmarks for the global biosimilars industry,” Mazumdar-Shaw pointed out, not least the approval and launch of the first US interchangeable biosimilar last year. (Also see "Viatris Wins Landmark First US Interchangeability Designation For Semglee" - Generics Bulletin, 29 Jul, 2021.)

“This strategic combination brings together the complementary capabilities and strengths of both partners and prepares us for the next decade of value creation for all our stakeholders.”

Through the deal, she said, BBL would “attain a robust commercial engine in the developed markets of the US and Europe,” while the transaction would also “fast-track our journey of building a strong global brand” and “make us future-ready for the next wave of products.”

“This development takes our partnership with Viatris to the next level to realize our shared purpose of impacting global health by providing affordable access to high quality essential and life -saving biosimilar drugs,” she summarized.

“This deal gives BBL full ownership of Viatris’ rights in biosimilars assets, enabling us to recognize combined revenues and profits.”

Meanwhile, BBL managing director Arun Chandavarkar said that “by combining the biosimilars business of Viatris to create a global, vertically integrated business in BBL, we are confident of unlocking significant value for our stakeholders.”

“This deal gives BBL full ownership of Viatris’ rights in biosimilars assets, enabling us to recognize combined revenues and profits,” Chandavarkar said, indicating that the two-year arrangement with Viatris to provide commercial and other transition services to BBL for would “ensure a seamless transition and continued service to patients and customers.”

“This deal provides several advantages, including strategic agility and operational efficiencies, which will help us mitigate pricing pressures in a competitive global biosimilars landscape,” Chandavarkar suggested.

“We remain committed to sustainable growth with a strong financial profile, expanded geographical reach and continued investments in R&D to build a world-leading biosimilars franchise,” he concluded. “We believe that as a fully integrated global company, we will be able to enhance patient access and reduce healthcare inequities worldwide.”

Viatris: Deal Offers ‘More Optimized’ Participation In Biosimilars

From Viatris’ perspective, the deal seemingly marks a major exit from a key area of interest for the company, although the firm suggested that its share in BBL would still allow it to keep a hand in biosimilars to some extent.

Commenting on the deal, Viatris executive chairman Robert Coury said “this transaction will allow Viatris to continue to participate in the global biosimilars space in a more optimized way, while also allowing us to accelerate our own financial priorities.” 

“Our unique collaboration with Biocon began more than a decade ago, even before a biosimilars pathway was defined in most countries,” Coury recalled.

“During that time, we have experienced many successes, and today is no exception as we join together to create a new, uniquely positioned world class vertically integrated biosimilars leader.”

The announcement of the deal comes around 15 months after the completion of the merger between Mylan and Pfizer’s Upjohn that created Viatris.

Reflecting on the progress made by the company in its first year, Viatris CEO Michael Goettler had recently told Generics Bulletin that biosimilars were “an important growth area” for the company, heralding the improved access to insulin glargine that would be offered by the firm’s Semglee interchangeable biosimilar. (Also see "Viatris CEO Talks Integration, Roadmap And Interchangeable Biosimilars" - Generics Bulletin, 22 Nov, 2021.)

“The deal will lead to operational efficiencies across the complete value chain.”

Summing up its “compelling strategic rationale” for the deal, Biocon said that after the transaction closes, “BBL will realize the full revenue and associated profits from its partnered products,” representing “a step up from its existing arrangement with Viatris.”

“The deal will expand BBL’s EBITDA base and strengthen overall financials,” Biocon insisted, “enabling investments for sustained long-term growth.”

Moreover, the merger will also “lead to operational efficiencies across the complete value chain,” Biocon emphasized, “and build agile capabilities in development, manufacturing, regulatory, supply chain and commercialization in developed and emerging markets.”

“Combining Viatris’ biosimilars business with BBL accelerates the build out of our commercial capability in developed markets,” the firm underlined, “in order to become a strong global brand with a direct presence in US, Europe, Canada, Japan, Australia and New Zealand.”

“Our longstanding relationship with Viatris and experience in co-development of products positions us well to maximize value from this transaction for all our stakeholders.”

Analysts: $3.3bn Was ‘Too Good To Walk Away’

In a 27 February note, analysts at Raymond James & Associates said that the $3.3bn valuation was “simply too good to walk away” for Viatris, adding that “reality is that financial markets will never pay 17.0x for anything Viatris ever does in the future.”

Meanwhile, the 12.9% equity stake in Biocon Biologics that will be held by Viatris could enable “meaningful additional value creation” depending on the performance of the combined entity, Raymond James & Associates suggested.

Separately, Bernstein Research said in a 27 February note that the deal offered “a nice bump for Viatris for what seemed to be a struggling business,” adding that the deal rationale “is likely driven by Asian valuation of biosimilar companies.”

“Biocon will likely float the business (BBL) and having the full value chain de-risks the business,” Bernstein Research said. “We notice a similar recent transaction by Samsung Biologics and Biogen” (see sidebar).

“We thus see this deal as Viatris getting a bit more than the business is worth to help unlock the public value for BBL.”

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