Following three years of speculation, Novartis AG (NVS, Financial) may be ready to split off its Sandoz unit. The latter, which has operated with minimal input from its parent since 2018, may gain full independence, according to Fierce Pharma. There’s even talk the seller of biosimilars and complex generics could become a public company. Novartis was created in 1966 by the merger of Sandoz and Ciba-Geigy.
A spinoff would be a 180-degree turn from January of this year, when Novartis CEO Vas Narasimhan, M.D. renewed his commitment to Sandoz. Perhaps he was influenced by plans by GlaxoSmithKline PLC (GSK, Financial) and bluebird bio Inc. (BLUE, Financial) to split into several entities.
A spinoff is in line with Narasimhan’s efforts to increase shareholder value by slimming down the Swiss pharma giant. He has already jettisoned the company’s Alcon Inc. (ALC, Financial) unit, which turned out to be a good deal for shareholders of the eye business given that its stock has climbed more than 50% since April 2019. During the same period, Novartis shares are up a meager 3%. Narasimhan also offloaded the company’s animal business.
We’ll know more about the potential separation of Sandoz by the end of the year, Novartis said Tuesday. It’s possible it will even retain the unit, and expects nothing to happen until next year.
Novartis may have soured on Sandoz because growing price pressures on generic drugs- particularly in the U.S.- show no signs of easing. In the first nine months of 2021, Sandoz’s sales in the U.S. dropped 17%. Total sales fared better, declining only 4% at constant currencies to just over $7 billion. In the third quarter, Sandoz’s profit margin was 23.8%, down more than 3%. Reuters reported Novartis chopped Sandoz's full-year outlook for operating income to a decline by a "mid to high teens” percentage rate," worse than the "low to midteens” seen previously.
Overall, Novartis saw net sales grow by 5% during the quarter, driven by increased demand for its big hitters, Entresto, Cosentyx, Kesimpta, Jakavi, Zolgensma, Revolade and Kisqali.
It’s unlikely Sandoz will be merged with another generics company because of anti-trust concerns. Novartis struck out last year when it tried to sell its U.S. oral solids business, together with a dermatology franchise, to India’s Aurobindo Pharma (BOM:524804, Financial) for about $1 billion. But that deal was nixed by the U.S. Federal Trade Commission.
"Given the continued drag on Novartis's growth from Sandoz, the announcement of a strategic review is likely to be well received," JPMorgan analysts said in a research note. The news helped boost Novartis shares $1.48 on Tuesday, but it gave up that gain and more Wednesday, trading at just over $83.
It’s probably a long shot, but there are whispers that Sandoz could be bought by a private investment firm. After all, Bain Capital and Cinven bought German generics company Stada and delisted the drugmaker in 2018. Stay tuned.
