Merck Continues Manufacturing Site Divestment With Sale Of Pavia, Italy, Factory
This article was originally published in The Pink Sheet Daily
Executive Summary
Italy strengthens future role in pharmaceutical manufacturing by the purchase of Merck & Co.’s high-profile Pavia facility by a local company.
Merck & Co. Inc. is beginning to undo some of the glut of manufacturing sites left to it as a result of its 2009 mega-merger with Schering-Plough Corp.
The New Jersey-based pharma has entered into an exclusive agreement to sell its high-profile manufacturing facility in Pavia, Italy, to the Italian generics and pharmaceuticals concern Istituto Biochemico Nazionale Savio (Ibn Savio), in a divestment process that at one point included another local pharmaceutical company, Zambon SPA, as a suitor.
Ibn Savio has agreed to take on around 100 employees at the facility and Merck says it will keep making certain drugs there for the next five years. Although the value of the transaction has not been disclosed, at its peak the plant produced 450 million tablets and 13 million bottles annually and had nearly 300 employees. The deal between MSD and Ibn Savio is expected to be completed by June 30, the companies announced Apr. 9.
The deal has been greeted enthusiastically by Massimo Scaccabarozzi, president of the Italian pharmaceutical trade association Farmitalia, who said the acquisition by an Italian company was a “source of pride for the entire sector in the country.” Head of the Italian regulator AIFA Luca Pani said the agreement “underlines the country’s excellence in manufacturing, an essential requirement for the protection of public health.”
Merck announced in June 2013 that the Pavia site, situated 35 km north of Milan, would be dropped from its production network by Dec. 31 2014, as part of a reorganization of its manufacturing network. At around the same time, Merck sold its active pharmaceutical ingredient-manufacturing operations in the Netherlands to Aspen Pharmacare Holdings Ltd. for $437 million ([See Deal]). Later in 2013, Merck announced further cost-cutting initiatives (Also see "Merck’s Big Move: Massive Cost Cuts And R&D Changes Ahead" - Pink Sheet, 1 Oct, 2013.).
The rationalization and cost-cutting initiatives followed a string of mergers that included the acquisition of Schering-Plough in 2009, a company that previously had acquired the Netherlands-based company Organon NV. Merck ended up with more than 90 manufacturing facilities, including several major plants in Europe such as those at Organon’s headquarters in Oss, the Netherlands .
In the middle of 2014, Merck announced it was negotiating the sale of the Pavia facility to the privately held Italian company Zambon and expected to complete the deal by the end of 2014, but the deal collapsed months later for undisclosed reasons.
Ibn Savio already has facilities in Pomezia, just outside Rome, and Ronco Scrivia, just outside Genoa, with around 200 employees and a turnover of €60 million ($64 million) annually. It manufactures and packages solid, oral liquids and topical products at its Pomezia plant and injectable liquids in Ronco Scrivia.
A Difficult Process In Europe
Rationalizing manufacturing and research facilities in Europe can be tricky for big pharma companies, partly because of legislation that protects workers’ rights and also because it can sour relationships with governments that want to retain the jobs.
Sanofi has for several years tried to divest its R&D facility in Toulouse, France, despite strong opposition from the government and unions, and it only was able to announce this past December that the German drug-discovery company Evotec AG would take over the site. Evotec agreed to a long-term lease on the site, and Sanofi has provided a €40 million ($44 million) upfront cash payment to Evotec as part of a minimum €250 million ($273 million) five-year financial commitment (Also see "Evotec CEO: Growth Prospects Rely Heavily On Roche, Sanofi Deals" - Pink Sheet, 24 Mar, 2015.).
But some European countries are more flexible: AstraZeneca PLC’s plans to consolidate its U.K. activities and set up global headquarters in Cambridge in the U.K. are progressing nicely (Also see "European Notebook: Pricing Reforms Debated In EU; Biosimilar Infliximab; AstraZeneca's HQ Build" - Pink Sheet, 23 Feb, 2015.).