Novartis To Spin Off Generics Unit Novartis In 2023

Novartis plans to spin off its generics unit Sandoz to sharpen its focus on its patented prescription medicines, the Swiss group said on Thursday, Aug. 25, 2022, acknowledging it had not received any formal offers for the business to date, Natalie Grover and Silke Koltrowitz reported for Reuters.

Photo Insert: Novartis shares already appropriately reflect the valuation of the two businesses.

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

Novartis has not received any formal 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 on Thursday.

However, "the most likely case - in all scenarios - is that we will see through a spin," he said. Although Novartis had 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 struggling broader market for generics, analysts said.

"Previous spin-outs from pharma companies have created near-term excitement given the strong track record of pharma spins outperforming parents. In this case, the competitive pressures in 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 analysts in a note. The Basel-based company's stock inched up in morning trading.

Sandoz - which generated nearly $10 billion in sales last year selling 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 to $500 billion worth of branded products expected to go off-patent over the coming decade.

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