Swiss drugmaker Novartis is planning to spin off its generics business after a protracted scrutiny of the division that has attracted interest from private equity firms and has even called for nationalization from politicians.
The Sandoz spin-off would create Europe’s largest generics company by revenue, Novartis said on Thursday, as it took one of its key steps to focus on faster-growing, higher-margin drugs.
The move is one of Chief Executive Vas Narasimhan’s boldest moves to focus Novartis on more lucrative drugs, including those targeting cancer and rare diseases. In 2019, the group spun off its eye care unit, Alcon.
Narasimhan said Thursday it was “better to separate them [Sandoz and Novartis] in a clean and efficient way”.
Although private equity firms had expressed interest in the deal, no convincing bids were made, according to people familiar with the matter. Narasimhan, who has headed the group since 2018, said the company has not received any formal offers.
Analysts at Citi said that given the Alcon spin-off, deteriorating conditions in financial markets and increased pricing pressure on generic drugs, “a spin-off has been the only viable way to separate Sandoz for some time.”
Founded by the Sandoz family, the company merged with Ciba-Geigy to form Novartis in 1996. The medicines manufactured by Sandoz, which employ around 20,000 people and generate annual sales of almost US$10 billion, are a staple of medicine cabinets in Germany, Austria and Switzerland.
Novartis had previously attempted to divest parts of Sandoz to Indian company Aurobindo in 2020, but competition concerns from US regulators saw the nearly $1 billion deal fall through in 2020.
Narasimhan said Thursday the generics sector is “a highly attractive market.”
“We’ll see how one of the outside firms will view the deal now that we have the full carve-out financials,” he said. “To be clear, I continue to anticipate that many outside parties will be very interested in this deal.”
Novartis said it expects the transaction to close in the second half of next year. The company added that it is “generally tax neutral” and requires shareholder approval.
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