Completion was expected in the second half of next year, the Swiss pharma group said.
Arnd Wiegmann | Reuters

Novartis plans to spin off its generics unit Sandoz to sharpen its focus on its patented prescription medicines, the particular Swiss group said on Thursday, acknowledging it had not received any formal offers for the business to date.

The company started a strategic review of Sandoz last October – examining a range of options, including retaining the business, spinning it away or selling it – following a protracted period of underperformance driven largely by mounting pricing pressures in the off-patent drug sector.

Novartis has not obtained any official binding offers for Sandoz so far — but if any “highly attractive” bids did emerge Novartis would fully consider them, CEO Vas Narasimhan told a media briefing upon Thursday.

However , “the most likely case – in all scenarios – is that we will see through a spin, ” he stated.

Although Novartis experienced reportedly received interest from private equity buyers, the spin-off announcement will not come as a surprise, given it was seen as a likely outcome due to poor market conditions and the particular struggling broader market with regard to generics, analysts said.

“Previous spin-outs through pharma company have created near-term excitement given the strong track record of pharma spins outperforming parents. In this situation, the competitive pressures within the generic space are likely to translate into lesser near term interest, ” Citi analysts wrote in a note.

Novartis shares already appropriately reflect the valuation of the two businesses, added J. P. Morgan experts in a notice.

The particular Basel-based company’s stock inched up in morning trading.

Sandoz – which generated nearly $10 billion in sales last year marketing generics and biosimilars (cheap versions of biologic drugs made from living organisms) : will emerge as Europe’s leading generics company, according to Novartis.

Narasimhan described the market for generics as “highly attractive” going forward, citing $400 billion in order to $500 billion dollars worth associated with branded products expected to go off-patent over the coming decade.

The standalone Sandoz is expected to be headquartered in Switzerland plus listed on the SIX Swiss Exchange, with an American Depositary Receipt programme in the United States.

Richard Saynor would remain CEO following the spin-off.

The transaction, which is anticipated in order to be generally tax-neutral regarding Novartis, will be likely to become completed in the particular second half of next 12 months, subject to market conditions, tax rulings and opinions, final board endorsement and shareholder approvals, Novartis said.

How much Novartis debt Sandoz will carry as a separate entity will certainly be finalised closer to the separation, Narasimhan mentioned.

“We want Sandoz to have adequate flexibility in order to invest within the company from a capital infrastructure standpoint, as well as to pursue any kind of needed M& A in order to drive growth. ”

Meanwhile, the slimmed down Novartis will also continue to have an appetite for deals. Bolt-on transactions worth less than $4 billion are still on the cards, Narasimhan said.

Pricing pressures

Sandoz sales have been hurt by pricing pressure that has affected the wider generics industry for years, particularly in the United States, although the country accounts for less than a quarter of the particular unit’s total sales.

In 2021, sales within Europe declined by 2%, while U. S. product sales tumbled 15% on a constant currency basis, hit also by a COVID-related drop in demand.

However, there are encouraging signs.

Last month, Novartis said Sandoz’s earnings would likely hold steady this year, primarily thanks in order to growth within Europe. Narasimhan also predicted a return to U. S. growth intended for the unit, with anticipated biosimilar approvals for blockbuster medicines such as Humira plus Tysabri next year.

Novartis has been pruning the business interests, spinning away from its Alcon eye care business in 2019 and last November agreeing in order to sell a nearly one-third voting stake within Roche.

It tried to divest part of Sandoz back in 2018, but a $900 million deal with India’s Aurobindo Pharma fell foul of antitrust rules.

Now, Narasimhan is aiming to spin off the entire division, which usually accounted for close to a fifth associated with Novartis’ $51. 6 billion in sales last yr.

Novartis is also implementing a restructuring programme that will involves cutting up to 8, 000 jobs, or about 7. 4% of its global workforce.

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