A transfusion for Grifols

NEW YORK—Barcelona, Spain-based healthcare products firm Grifols has agreed to purchase Novartis' transfusion diagnostics business for approximately $1.68 billion.

Grifolos is buying Novartis' diagnostic products for transfusion medicine and immunology, including its nucleic acid amplification techniques, instrumentation, and equipment for blood screening, specific software, and reagents. Assets being acquired include patents, brands, licenses, and royalties. Grifols also is acquiring a production plant in Emeryville, Calif., and commercial offices in the US, Switzerland, and Hong Kong.

About 550 Novartis' employees associated with the transfusion diagnostics business, will move to Grifols as part of the deal, which was unanimously approved by the boards of both firms and is anticipated to close in the first half of 2014.

Current Novartis Chief Executive Joe Jimenez and new Chairman Joerg Reinhardt have both stressed they will only hang on to businesses that are among world leaders. Jimenez said on Monday he started the review of Novartis's businesses in the spring and the matter had gone to the board over the summer.

He said other potential sell-offs were possible as Novartis examines whether three sub-scale businesses – vaccines and diagnostics, over-the-counter (OTC) products and animal health – have a long-term future in the group.

“We need to have global scale in these businesses and right now we're in that process of gaining scale or considering other options for these businesses,” he said.

Analysts at Jefferies said the Grifols deal marked the first move in a long-awaited restructuring and they expected vaccines to be the next area of focus. The brokerage previously estimated the combined vaccines and diagnostics unit could be worth around $7.7 billion, suggesting the remaining part could eventually be sold for about $6 billion.

The deal is fully underwritten with a $1.5 billion bridge loan fully subscribed in equal parts by Nomura, BBVA, and Morgan Stanley, Grifols and Novartis said. The transaction will be structured through Grifols' Diagnostic Division and a newly created subsidiary owned by the company. Upon its completion, revenues from the division are expected to approach $1.0 billion on a pro forma basis, or about 20 percent of the firm's total revenues, up from 4 percent currently.

The acquisition is part of a growth strategy by Grifols to complement its plasma protein therapies with diagnostic products and services.

Grifols provides protein therapies and other healthcare tools and operates three divisions, Diagnostic, Bioscience, and Hospital. The Diagnostic division develops and manufactures instruments and reagents directed at transfusion medicine, immunology, and hemostasis, and is a supplier of diagnostic tests for transfusion, including blood-typing tests, or donor-patient pre-transfusion compatibility tests. It also produces and distributes blood collection bags.

Its products are used by hospital blood banks, transfusion centers, and clinical immunohematology laboratories. In the US, more than 80 percent of the blood supply is tested on Novartis' systems, Grifols said.

Grifols said the deal will strengthen its Diagnostic business, in particular in the US, and diversifies its business by promoting an activity area that complements the Bioscience division, which is focused on plasma proteins.

“The acquisition of Novartis' diagnostic business is a step further into our vision to become a world leader also in the diagnostics field,” Grifols president and CEO Victor Grifols said. “To achieve this we knew we needed a significant presence in [the] United States.” As a result of the purchase, Grifols will have a “more efficient platform” to market a wider range of diagnostic products and services in the US and elsewhere “ and will also optimize its after-sales resources.”