# Novartis to spin off generics business Sandoz next year
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-26
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Novartis to Spin Off Underperforming Sandoz: Strategic Review
Meta Description: Novartis plans to spin off its underperforming generics unit Sandoz to focus on patented prescription medicines, citing mounting pricing pressures in
URL: https://financedigest.com/novartis-to-spin-off-generics-business-sandoz-next-yearhtml

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By Natalie Grover

ZURICH/LONDON (Reuters) -Novartis plans to spin off its underperforming generics unit Sandoz to sharpen its focus on its patented prescription medicines, the 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 off or selling it – following a protracted period of underperformance driven largely by mounting pricing pressures in the off-patent drug sector.

Apart from some preliminary interest, Novartis has not received any formal binding offers for [Sandoz](https://www.financedigest.com/novartis-names-firmenich-ceo-as-chairman-designate-of-sandoz-2.html "Novartis names Firmenich CEO as chairman designate of Sandoz") so far – but if any “highly attractive” bids did emerge Novartis would fully consider them, CEO Vas Narasimhan said in a conference call with analysts.

However, “we think a spin is by far and away the most likely and best way to [separate these two companies,”](https://www.financedigest.com/why-it-pays-for-companies-to-hold-physical-assets-in-separate-limited-companies.html "Why it pays for companies to hold physical assets in separate limited companies") he said.

The spin-off announcement did not come as a surprise given poor market [conditions](https://www.financedigest.com/condition-monitoring-service-market-buoyant-with-flourishing-power-generation-industry-adoption-exhibits-a-notable-decline-amid-covid-19-pandemic-fmi.html "Condition Monitoring Service Market Buoyant with Flourishing Power Generation Industry; Adoption Exhibits a Notable Decline Amid COVID-19 Pandemic: FMI") and the struggling broader market for generics, analysts said.

Previous spin-outs from pharma company have created near-term excitement given the strong [track record](https://www.financedigest.com/britain-on-track-for-record-black-friday-sales.html "Britain on track for record Black Friday sales") of pharma spins outperforming parents. In this case, the competitive pressures in the generic space are likely to translate into lesser [near term](https://www.financedigest.com/automotive-glass-market-to-witness-sales-slump-in-near-term-due-to-covid-19-long-term-outlook-remains-positive.html "Automotive Glass Market to Witness Sales Slump in Near Term Due to COVID-19; Long-term Outlook Remains Positive") interest,” Citi analysts wrote in a note.

[Novartis shares](https://www.financedigest.com/novartis-launches-new-11-billion-share-buyback.html "Novartis launches new billion share buyback") already appropriately reflect the valuation of the two businesses, added J.P. Morgan analysts in a note.

The Basel-based company’s [stock inched lower in afternoon trading](https://www.financedigest.com/global-stocks-trade-higher-at-the-end-of-a-volatile-month.html "Global stocks trade higher at the end of a volatile month").

Sandoz – which generated nearly $10 billion in [sales last year](https://www.financedigest.com/home-battery-sales-in-germany-may-surge-59-this-year-study.html "Home battery sales in Germany may surge 59% this year -study") 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](https://www.financedigest.com/why-a-quiet-revolution-in-the-cloud-is-worth-billions.html "Why A Quiet Revolution In The Cloud Is Worth Billions") of branded products expected to go off-patent over the coming decade.

The standalone Sandoz is expected to be headquartered in Switzerland and [listed on the SIX Swiss Exchange](https://www.financedigest.com/ceo-blume-hails-historic-moment-as-porsche-ag-lists-on-frankfurt-exchange.html "CEO Blume hails ‘historic moment’ as Porsche AG lists on Frankfurt 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 to be generally tax-neutral for Novartis, is expected to be completed in the second half of [next year](https://www.financedigest.com/1-in-10-workers-considering-a-career-change-in-the-next-year.html "1 in 10 workers considering a career change in the next year"), subject to market conditions, tax rulings and opinions, final board endorsement and shareholder approvals, Novartis said.

Plans for the spin-off would not be derailed by U.S. [drug pricing](https://www.financedigest.com/bristol-myers-pfizer-abbvie-drugs-likely-to-face-u-s-price-negotiation.html "Bristol Myers, Pfizer, AbbVie drugs likely to face U.S. price negotiation") reforms, Narasimhan said.

Last week, a landmark law that included provisions to tackle the [rising cost](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise") of medicines was passed in the United States, in a rare legislative defeat for the powerful pharmaceutical industry.

Sandoz will, however, reassess whether certain biosimilars still are an attractive [market opportunity](https://www.financedigest.com/new-report-of-fuel-conditioning-system-market-with-size-growth-drivers-market-opportunities-business-trends-and-forecast-to-2028.html "New Report Of Fuel Conditioning System Market With Size, Growth Drivers, Market Opportunities, Business Trends And Forecast To 2028"), added Narasimhan.

[PRICING PRESSURES](https://www.financedigest.com/heavy-norwegian-gas-maintenance-adds-to-energy-price-pressure.html "Heavy Norwegian gas maintenance adds to energy price pressure")

Sandoz’s sales have been hurt by pricing pressure that has affected the broader generics [industry for years](https://www.financedigest.com/2022-the-year-that-facial-recognition-will-lead-the-fintech-industry.html "2022 – The year that facial recognition will lead the fintech industry"), particularly in the United States, although the country accounts for less than a quarter of its total sales.

In 2021, [sales in Europe](https://www.financedigest.com/geelys-ev-brand-zeekr-aims-to-double-sales-in-2023-expand-in-europe.html "Geely’s EV brand Zeekr aims to double sales in 2023, expand in Europe") declined by 2%, while U.S. [sales tumbled 15%](https://www.financedigest.com/uk-car-sales-hit-30-year-low-in-2022-but-could-grow-15-this-year-smmt.html "UK car sales hit 30-year low in 2022, but could grow 15% this year – SMMT") 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](https://www.financedigest.com/novartis-names-firmenich-ceo-as-chairman-designate-of-sandoz.html "Novartis names Firmenich CEO as chairman designate of Sandoz") earnings would likely hold steady this year, primarily thanks to growth in Europe.

Narasimhan also predicted a return to U.S. growth, with expected biosimilar approvals for blockbuster medicines such as Humira and Tysabri [next year](https://www.financedigest.com/cepsa-to-nearly-double-investments-over-next-3-years-as-profit-soars.html "Cepsa to nearly double investments over next 3 years as profit soars").

Novartis has been pruning its business interests, spinning off its Alcon eye [care business](https://www.financedigest.com/the-importance-of-property-care-looking-after-your-business.html "The Importance of Property Care: Looking After Your Business") in 2019 and last November agreeing to sell a nearly one-third voting stake in Roche.

It tried to divest part of Sandoz back in 2018, but a $900 [million deal with India’s](https://www.financedigest.com/nissan-renault-to-invest-600-million-to-make-6-new-models-in-india.html "Nissan, Renault to invest 0 million to make 6 new models in India") Aurobindo Pharma fell foul of antitrust rules.

Now, Narasimhan is aiming to spin off the entire division, which accounted for close to a fifth of Novartis’ $51.6 billion in [sales last year](https://www.financedigest.com/spains-november-retail-sales-fall-0-6-on-year.html "Spain’s November retail sales fall 0.6% on year").

Novartis is also implementing a restructuring programme that involves cutting up to 8,000 jobs, or about 7.4% of its [global workforce](https://www.financedigest.com/2021-the-year-of-the-global-workforce-for-british-small-businesses.html "2021: The Year of the Global Workforce for British small businesses ").

(Reporting by Silke Koltrowitz and Natalie GroverEditing by Mark Potter and Elaine Hardcastle)


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