Novartis to spin off generics business Sandoz next year

ZURICH/LONDON (Reuters) – Novartis (NOVN.S) plans to spin off generics division Sandoz to increase its focus on patented prescription drugs, a Swiss group said on Thursday. . business so far.

The company launched a strategic review of Sandoz last October, including keeping the business, spinning it off, or selling it after a long period of underperformance largely due to increasing price pressure in the off-patent drug sector. We considered various options.

Novartis has not received a formal binding offer for Sandoz so far, but said at a media briefing on Thursday that if there is a “very attractive” bid, Novartis will give it serious consideration.

But “the most likely case in all scenarios is to look through the spin,” he said.

Novartis has reportedly attracted interest from private equity buyers, analysts say, but the spinoff announcement comes as a surprise as market conditions worsen and the broader market for generics struggles. It’s not that.

“Previous spin-outs from pharma have created short-term excitement given the strong track record of pharma spin-outs outperforming their parent companies. It could lead to a decline in interest,” wrote a Citi analyst. in a note.

JP Morgan analysts added in a note that Novartis shares already properly reflect valuations of the two businesses.

Shares of the Basel-based company edged higher in morning trading.

With nearly $10 billion in sales last year selling generics and biosimilars, according to Novartis, Sandoz will emerge as Europe’s leading generic drug company. .

Narasimhan described the future generics market as “very attractive”, noting that $400 billion to $500 billion worth of branded product patents are expected to expire over the next decade.

The independent Sandoz will be headquartered in Switzerland, listed on the SIX Swiss Exchange and will utilize an American Depositary Receipt program in the United States. Richard Sayner will remain CEO after the spinoff.

The transaction, which is generally expected to be tax-neutral to Novartis, is expected to close in the second half of next year, subject to market conditions, tax rulings and opinions, final board approval and shareholder approval. Yes, Novartis said.

The extent to which Sandoz will take on Novartis debt as a separate entity will be determined as the separation approaches, Narasimhan said.

“We want Sandoz to have enough flexibility not only to invest in the business from a capital infrastructure perspective, but also to pursue the M&A opportunities necessary to drive growth.”

Meanwhile, a slimmed-down Novartis also remains open to deals. Bolt-on deals under $4 billion are still on the card, Narasimhan said.

price pressure

Sandoz’s sales have been hit by price pressures that have affected the generics industry across the industry, especially in the United States, which accounts for less than a quarter of the unit’s total sales. .

European sales fell 2% in 2021, while US sales fell 15% on a constant currency basis, also affected by lower COVID-related demand.

However, there are encouraging signs. Last month, Novartis said Sandoz’s earnings were likely to remain stable this year, largely thanks to growth in Europe.

Narasimhan also expects the unit’s U.S. growth to rebound as biosimilars of blockbuster drugs such as Humira and Tysabri are expected to be approved next year.

Novartis, which spun off Alcon’s eye care business in 2019 and agreed to sell about one-third of its voting rights in Roche (ROG.S) last November, has been slashing business profits. .

The company tried to sell part of Sandoz in 2018, but its $900 million deal with India’s Aurobindo Pharma (ARBN.NS) violated antitrust laws.

Now Narasimhan is looking to spin off an entire division that accounted for nearly a fifth of Novartis’ $51.6 billion in revenue last year.

Novartis is also implementing a restructuring program that will cut up to 8,000 jobs, representing approximately 7.4% of the global workforce.read more

Reporting by Silke Kortrowitz and Natalie Glover Editing by Jason Neely and Mark Potter

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