Novartis begins plans to spin off generic drug business

Dive Brief:

• Novartis will spin off its Sandoz generics unit into an independent company, saying Thursday the plan would give its executives the flexibility to pursue the best opportunities in lookalike pills and biosimilars while allowing the parent company to focus on new patent-protected medicines.
• The decision follows a strategic review that also considered a sale of Sandoz to another company. Private equity groups Blackstone and Carlyle were considering buying the generics division, Bloomberg reported in February. The spinoff will give existing Novartis stockholders full ownership of the company, shares of which will be listed on the Swiss exchange.
• The announcement comes amid signs that the generics business is beginning to rebound with slowly growing sales in 2022. Novartis executives believe the environment for lookalike drugs will improve over the next decade after years of stagnant and decreasing prices, helped along by expanded use of biosimilars as expensive biologic drugs worth tens of billions of dollars in annual sales lose market exclusivity.

Dive Insight:

Sandoz is nearly synonymous with the Swiss drugmaker, as it was the name of the pharmaceutical company that merged with the chemicals group Ciba-Geigy in 1996 to form the entity now known as Novartis. The Sandoz name was revived when Novartis decided to merge all of its generics brands under a single umbrella in 2002.

Ahead of a major industrywide patent cliff in the early 2010s, owning a generic division was viewed as a strategic strength as it provided a steady revenue cushion against losses from branded medicines losing market exclusivity. But over time, competition and price erosion have buffeted the sector, causing years of stagnation for pure-play generics makers like Teva and prompting conglomerates to reconsider ownership of generics divisions and other lower-margin businesses.

Novartis has gradually trimmed back its interests, selling its stake in a consumer-products joint venture with GSK in 2018 and spinning off the eye-care business Alcon in 2019.

The company announced a strategic review of Sandoz last year at a time when generics revenue was expected to be shrinking for some time. However, sales grew by 6% in the first half of 2022, to $4.7 billion, led by 7% growth in Europe and 11% in the rest of the world excluding the U.S., where sales were down 2%.

The transaction will make Sandoz a standalone company in the second half of 2023, positioning it to take advantage of the growth of off-patent medicines through 2031, executives said. The market for small-molecule generics is expected to grow by 4% a year to $369 million by then, while biosimilars will grow by 17% a year to $100 billion, Novartis said.

The remaining Novartis will be focused on developing new medicines, and a spinoff will incrementally increase profits and free cash flow, the company said. 

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