The Swiss pharmaceutical company is likely to focus on high-margin new drugs in the future.
(Photo: Reuters)
Zurich The Swiss pharmaceutical company Novartis wants to spin off its business with generic drugs and list it on the Swiss stock exchange. The independent generics division Sandoz is to have its headquarters in Switzerland and be listed on the Swiss stock exchange SIX, the drug manufacturer from Basel announced on Thursday.
Sandoz is to be completely spun off, according to the Novartis statement. This will create “the largest European generics company and a global leader in biosimilars, as well as a more focused Novartis.” American Depositary Receipts (ADS) are also to be listed in the USA, a kind of substitute vehicle for stock trading on the US market. An exact schedule is not yet known.
Novartis announced last October that it would examine strategic options for the further development of the manufacturer of generic drugs. Novartis boss Vasant Narasimhan had kept all options open: a sale, as well as an IPO.
Narasimhan wants Novartis to focus even more on highly specialized medicines. The CEO said, “We believe this is the best decision for our shareholders.” The move will “complete Novartis’ path to becoming a focused company for innovative medicines.”
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The Basel group wants to become a leader in the five areas of hematology (blood diseases), immunology and the treatment of tumors, cardiovascular and nervous diseases.
Generics division no longer fits into the concept
The less profitable generics business simply no longer fits into the concept. The division also did not contribute to stabilizing earnings during the corona crisis. Because fewer people were going to see a doctor, Novartis was hit twice by the pandemic: the group had to accept a drop in sales of patented therapies and generics.
The local competitor Roche, on the other hand, was able to more than compensate for the drop in sales in the pharmaceuticals business with its diagnostics business, which is one of the market leaders in corona tests. After all, Novartis was able to slightly raise the forecast for Sandoz in the half-year figures.
As standalone companies, Novartis and Sandoz could each focus on maximizing value creation for their shareholders, Narasimhan said. The management teams of the two groups could also determine their product pipeline and the use of capital individually.
It is the admission that Narasimhan sees no significant synergy effects with the generics business. Vontobel analyst Stefan Schneider takes a similar view: “The spin-off makes sense because the management of both businesses has become more complex in recent years.”
Is the 20 billion valuation tenable?
It is unclear how much Novartis wants to collect with the sale of Sandoz on the stock exchange. Last autumn there was still a valuation of up to 20 billion Swiss francs in the room. At that time, according to Handelsblatt information, investors such as the Strüngmann family and the financial investor EQT were also considering taking over Sandoz.
However, it is questionable whether the CHF 20 billion valuation can be maintained: the recent rise in interest rates has ensured that many private equity firms are less hungry for debt-financed large-scale takeovers.
Narasimhan confirmed on Thursday that there were interested parties in acquiring Sandoz, including private equity firms. However, the group did not receive a binding purchase offer. At the same time, he left a back door open for an off-exchange sale: “I can’t rule out that if someone came up with a very, very attractive offer, we would have to consider it.”
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