Novartis updates on Sandoz finances ahead of spin-off

Novartis confirmed this morning that it expects to complete the separation of its generic and biosimilar medicines unit Sandoz into an independent company on or around 4th October – and provided more financial details ahead of the transaction.

It said Sandoz made sales of $4.8 billion in the first half of the year, up 8% at constant currencies, with operating profit up 3% to $1 billion. The revenue gains were mainly derived from increased volumes in Europe, driven by biosimilars and a strong cough and cold season, and partly offset by negative price effects.

Novartis also confirmed its full-year financial predictions for Sandoz, including mid-single-digit net sales growth and margins of 18% to 19% in 2023 that it expects to rise to 24% to 26% in the mid-term.

Sandoz's management has previously told investors that it expects to add $3 billion in annual sales from the launch of new products after the separation, mostly from biosimilars and complex generics, and it has been building biologics manufacturing capacity in preparation.

The Swiss pharma group is following many of its rivals in the pharma sphere in narrowing its focus on higher-value, innovative medicines and exiting categories like generics and consumer health products that offer lower margins.

Other examples include Pfizer's spin-out of its Upjohn generics business in 2020 – to be combined with Mylan to form Viatris – as well as several consumer health sell-offs in recent years, for Novartis as well as Johnson & Johnson, GSK, and Pfizer. Novartis also spun out its Acon eyecare business in 2019.

Novartis will hold an extraordinary general meeting (EGM) of its shareholders on 15th September to seek final approval for the spin-off. Shareholders stand to receive a Sandoz share for every five Novartis shares or American Depositary Receipts (ADRs) they hold. Novartis' board unanimously voted in favour of separating Sandoz last month.

In addition to shareholder approval, Novartis will also need to get the green light from regulators for the listing of Sandoz shares on the SIX Swiss exchange and for an ADR programme in the US.

Novartis started a strategic review of Sandoz in 2021, after the subsidiary had been suffering from pressure on sales and operating profits for several years due mainly to pricing pressures, which were then compounded by the pandemic.

It has said that the spin-off will allow investors to "participate fully in the potential future upside of both Sandoz and Novartis."

The generics and biosimilars market was worth about $208 billion in gross sales before discounts and rebates in 2022 and is forecast to grow at about 8% annually over the next decade.