Why Sun Pharma’s hefty bid for Organon has divided investors

The potential deal has divided the market, pitting those confident in chairman Dilip Shanghvi’s track record of creating value against skeptics wary of Organon’s $8.9 billion debt pile and recent management problems.

Organon was spun off from Merck in 2021 for its women’s health, legacy generic drug brands and biosimilars businesses. The deal will push Sun beyond generics and into higher-margin specialty/innovative branded markets, which has been the company’s long-standing goal.

The developments were first reported by the Economic Times in two reports on Monday and Tuesday. In an exchange filing on Monday, Sun Pharma called the reports “speculative in nature.” Sun Pharma and Organon did not respond mint e-mailed inquiries.

SunPharma’s stock price closed little changed Monday, down 3.23%. ₹Deal valuation stood at 1,621.30 on the NSE on Tuesday amid concerns over Organon’s debt and recent management issues. Nifty Pharma index lost 1.84% on Tuesday.

But some investors applauded the bold claim, pointing to Sun Pharma’s strong management team led by Shanghvi and its track record of capturing value from acquisitions.

What Organon will bring

If the deal goes through, Organon will bring in revenue of approximately $6.4 billion with a healthy EBITDA of $1.96 billion (FY24). However, Sun also has a large debt of $8.9 billion to assume.

“It’s not a growth asset, but there are elements in this business that can help them,” said Vishal Manchanda, pharmaceutical analyst at Systematix Group. “It could grow in low single digits overall. It could also deliver higher earnings growth with some cost-related rationalizations,” he added.

This acquisition will increase Sun’s sales of both generic and specialty drugs in the United States. The drugmaker is the fifth-largest producer of generic drugs in the United States. Organon reported sales of close to $1.6 billion from North America in FY24 and could push Sun’s U.S. earnings to more than $3 billion.

“It’s attractive because it’s an existing commercial platform in the US and it’s a quicker route to scale than building from scratch. I believe this is Sun using optionality rather than pursuing an R&D pipeline or moonshots,” said independent pharma analyst Salil Kallianpur.

But investors have also expressed concerns about Organon’s pipeline. Its best-selling product, the long-acting, reversible birth control implant Nexplanon, had the biggest revenue in 2024 at $963 million and saw sales decline in the last quarter and will lose patent exclusivity in 2027. The company’s revenues also fell marginally in the nine months to September 30, from $4.8 billion in 2024 and $4.7 billion in 2025.

Nexplanon’s management issues, such as questionable sales tactics, caused CEO Kevin Ali to step down in October, dealing a heavy blow to the company. The stock has fallen nearly 45% in the past year, dropping its market value to $2.28 billion.

While the valuation of the deal is still uncertain, it would likely be in line with the generally accepted global practice of valuing a firm at 1.5 times annual revenue (in this case, around $9-10 billion).

Despite this, valuation and large debt continue to be a concern for investors. “Indian pharma companies don’t have a good track record of making big acquisitions abroad,” said an investor who wished to remain anonymous, citing Biocon’s 2022 acquisition of Viatris (an acquisition for which Biocon is still struggling to pay over $1 billion through emergency share sales to institutional investors in recent times) or Lupine’s $880 million Gavis acquisition in 2016, in which it gave Gavis a big upset in the market. as the dynamics change.

Sun returns to big purchases

Sun’s acquisition of Ranbaxy for $4 billion in 2014 is in stark contrast to these. The agreement took it to first place in the domestic market, which it has maintained to this day.

When he acquired Ranbaxy, Shanghvi appeared to be betting on both a local and global scale. At the time, he thought Ranbaxy was a great buy because it was offered cheaply at just twice the revenue of Ranbaxy, compared to the 3.4 times revenue that Abbott Laboratories paid for Piramal Healthcare in 2010. ₹It earned $1.3 trillion in April 2014, making Shanghvi the richest man in India.

But all was not well. Ranbaxy’s troubles with the FDA continued long after its acquisition of Sun, requiring Sun to close several business lines, including its manufacturing facilities in India. The FDA’s restriction on one of its manufacturing facilities compounded Sun’s woes, causing its stock to fall nearly 40% from its 2019 peak.

Since the Ranbaxy experience, Sun Pharma has shied away from big acquisitions, but it hasn’t shied away from smaller deals either, even if they look expensive. It acquired Checkpoint Therapeutics for $355 million in 2025 and Concert Pharmaceuticals for $576 million in 2023, giving them the rights to innovative drugs Unloxcyt and Leqselvi, respectively.

Therefore, the latest moves point to an important transformation. With its Organon bid, Sun is once again signaling that it is willing to pay large sums for an asset it deems valuable to its business strategy. Organon will add to Sun’s heft in the US private sales business, which caught Shanghvi’s attention last year. This also seems to be the most critical part of the future business, considering that Shanghvi has appointed his son Aalok to oversee this business in 2025.