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Novartis spin-off Sandoz may fetch $25bn as Swiss Pharma group NVS separates from its generic drugs arm

By Jenny McCall


Updated

A image of the Sandoz logo
Novartis will befollowing in the footsteps of its competitor, GlaxoSmithKline (GSK) - Photo: Shutterstock

Swiss-American multinational pharmaceutical corporation, Novartis (NVS), announced on Thursday that it will spin-off its $25bn generics drugs arm, Sandoz.

Novartis released a statement saying: "The spin-off aims to maximize shareholder value by creating the #1 European generics company and a global leader in biosimilars, allowing Novartis shareholders to participate fully in the potential future upside for both Sandoz and Novartis Innovative Medicines."

Sources close to the matter told Bloomberg  back in June that Novartis was planning to embark on a private equity sale of Sandoz. The Novartis (NVS) share price is 2% lower this year.

Initially it was thought that, the move to spin off Sandoz would be delayed as deal making has declined significantly this year, due to the war in Ukraine and rising inflation, which is preventing banks from lending money for takeovers.

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Novartis (NVS) share price chart

Strategic review

Joerg Reinhardt, Chair of the Board of Directors of Novartis, said: “Our strategic review examined all options for Sandoz and concluded that a 100% spin-off is in the best interest of shareholders. A spin-off would allow our shareholders to benefit from the potential future successes of a more focused Novartis and a standalone Sandoz, and would offer differentiated and clear investment theses for the individual businesses. Sandoz would become the publicly traded #1 European generics company and a global leader in biosimilars based in Switzerland.”

But despite the poor macro environment, Novartis (NVS)  will be following in the footsteps of its competitor, GlaxoSmithKline (GSK), which created a separate company, Haleon (HLN) for its consumer healthcare division.  

Vas Narasimhan M.D., CEO of Novartis, said: “For Novartis, the separation of Sandoz would further support our strategy of building a focused innovative medicines company, with depth in five core therapeutic areas, and strength in technology platforms. In addition, both companies would be able to focus on maximizing value creation for their shareholders by prioritizing capital and resource allocation, employing separate capital structure policies, and increasing management focus on their respective business needs.”

In 2018 Novartis (NVS) revealed a plan to give Sandoz more autonomy. A strategic review then followed in 2021, where a variety of options were discussed, from retaining the business to separation. At the time, Novartis (NVS) said, “a decision won’t happen overnight,” and that it planned to present an update of the discussions by the end of 2022.

Sandoz has come under regulatory scrutiny over the pricing of generics drugs and, in October 2021, along with Tara Pharmaceuticals USA Inc and Apotex Corporation, Sandoz agreed to pay a total of $447.2m (£370m) to resolve alleged violations of the False Claims Act, which arose from conspiracies to fix the price of various generic drugs.

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A statement from the United States department of Justice said: These conspiracies allegedly resulted in higher drug prices for federal health care programs and beneficiaries according to the Justice Department.”

“The government alleges that between 2013 and 2015, all three companies paid and received compensation prohibited by the Anti-Kickback Statute through arrangements on price, supply and allocation of customers with other pharmaceutical manufacturers for certain generic drugs manufactured by the companies.

Sandoz Inc., headquartered in New Jersey, agreed to pay $185 million. The Sandoz drugs inculded within the investigation, were benazepril HCTZ, used to treat hypertension, and clobetasol and a corticosteroid used to treat skin conditions.

In addition, for 2021, Sandoz experienced a decline in sales by 2%.

GlaxoSmithKline (GSK) share price chart

Since the strategic review, several suitors have emerged as possible candidates to take over Sandoz. In February, Bloomberg said that investor groups Carlyle Group (CG) and Blackstone Inc were going to join forces and put in a $25bn bid for the business. This was followed by Advent International, Hellman & Friedman and KKR & Co, who were all considering purchasing Sandoz.

Sandoz generated $9.6bn sales in 2021 sales and serves over 100 markets globally with a strong presence in Europe as well as in the United States and Rest of World. 

Now that the decision has been made to spin-off Sandoz, there are several challenges facing Novartis (NVS) CEO Vas Narasimhan. Novartis (NVS) is forecasting a decline in its generic drugs business and last month the group outlined plans to cut 8,000 jobs in a bid to save $1bn by 2024.

Markets in this article

GSKl
GSK
15.245 USD
-0.115 -0.750%
NVS
Novartis ADR
106.22 USD
-1.07 -1.000%
CG
The Carlyle Group Inc.
46.01 USD
-0.53 -1.140%

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