Novartis sees Sandoz adding $3 bln in net sales over next five years

Novartis' soon-to-be spun off generics division Sandoz is expected to expand its pipeline and potentially generate an additional $3 billion in net sales over the next five years, the Swiss group said on Thursday. The company intends to carve out Sandoz in the second half of this year to sharpen its focus on its patented prescription medicine business.

Novartis kicked off a strategic review of Sandoz in 2021 - examining a range of options including retaining the business, spinning it off or selling it - following a protracted period of underperformance driven largely by mounting pricing pressures in the off-patent drug sector. Sandoz sells generics and biosimilars - cheap versions of biologic drugs made from living organisms - and generated about $9 billion in sales last year.

The potential for $3 billion in additional net sales is expected to come from investing further in high-risk, high-reward biosimilars and complex generics, Novartis said. Novartis chief Vas Narasimhan has described the market for generics as "highly attractive" going forward, citing $400 billion to $500 billion worth of branded products expected to go off-patent over the coming decade.

Still, the Sandoz spin-off proposal did not come as a surprise given poor market conditions and the long struggling broader market for generics, analysts have said. On Thursday, Novartis confirmed it expected Sandoz to generate mid-single digit net sales growth this year, and added it anticipated the growth rate would remain in this range over 2024 to 2028.

The division's core margin on earnings earnings before interest, taxes, depreciation and amortization (EBIDTA) is expected to be in the range of 18% to 19% in 2023, down from 21.2% last year, reflecting global inflationary pressures and the investments required to implement the spinoff. But that range should climb to 24% to 26% in the mid-term, Novartis said.

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