Novartis is set to spin off Sandoz’s genetics business next year.

ZURICH/LONDON August 25, 2010 Novartis (NOVN.S) plans to focus its genetics unit on Sandoz’s patented prescription drugs, the Swiss group said on Thursday, trading today.

The company launched a strategic review of Sandoz last October – exploring options including keeping, spinning off or selling the business – following a prolonged lack of performance due to increased pricing pressures in the off-patent drug sector.

Novartis has yet to receive any formal binding offers for Sandoz – but Novartis will fully consider any “very attractive” bids that emerge, CEO Vas Narasimhan said in a statement to the media on Thursday.

However, “the most likely issue – in all cases – is what we see in rotation,” he said.

Although Novartis is said to have received interest from private equity buyers, the spinoff announcement would not be a surprise, given the likely result of weak market conditions and the broader market for genetics struggling, analysts said.

Citi analysts wrote: “Prior spin-offs from pharma companies have created recent excitement with pharma spin-offs outperforming their parents. In this case, competitive pressure in the generics space could translate into short-term interest.” In a note.

JP Morgan analysts note in a note that Novartis shares already accurately reflect the valuation of the two businesses.

Shares of the Basel-based company rose in morning trading.

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

Narasimhan described the genetics market as “very attractive” going forward, with $400 billion to $500 billion worth of branded products expected to go off-patent over the next decade.

Independent Sandoz is expected to be headquartered in Switzerland and listed on six Swiss exchanges in the United States with an American depositary receipt program. Richard Seinor will remain CEO following the runoff.

The transaction, which is expected to be generally tax-neutral for Novartis, is expected to close in the second half of next year, subject to market conditions, tax rulings and opinions, final board approval and shareholder approvals, Novartis said.

How much of Novartis’ debt Sandoz will carry as a separate entity will depend on the breakup, Narasimhan said.

“We want Sandoz to have the flexibility to invest in the business in terms of capital infrastructure, as well as pursue any necessary M&A to drive growth.”

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

Price pressures

Sandoz’s sales have been hurt by price pressures that have affected the broader genetics industry for years, particularly in the United States, although the country accounts for less than a quarter of its total sales.

In the year In 2021, sales in Europe are down 2%, while US sales are down 15% in constant currency, hit by a Covid-related drop in demand.

However, there are encouraging signs. Last month, Novartis said Sandoz’s revenue could continue to grow this year, mainly due to growth in Europe.

Narasimhan predicted a return to US growth for the segment, with biosimilar approvals expected next year for blockbuster drugs such as Humira and Tysabri.

Novartis has been cutting its business interests, spinning off its Alcon eye care business in 2019 and last November agreed to sell a nearly one-third voting stake in Roche ( ROG.S ).

In the year It tried to divest part of Sandoz in 2018, but a $900 million deal with India’s Aurobindo Pharma ( ARBN.NS ) missed antitrust rules.

Now, Narasimhan plans to drive the entire division to nearly a fifth of Novartis’ $51.6 billion in sales last year.

Novartis is implementing a restructuring program that will cut up to 8,000 jobs, or 7.4% of its global workforce. Read more

Reporting by Silke Koltrowitz and Natalie Grover Editing by Jason Neely and Mark Potter

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