Novartis to spin off generic drugs unit Sandoz

Swiss pharma group Novartis plans to spin off its generic drugs business after a lengthy review of the division, which drew interest from private equity firms and even calls from politicians for it to be nationalised.

Spinning off its Sandoz division would create the largest generic drugs company in Europe by sales, Novartis said on Thursday, as it set out one of its most significant moves to focus on faster-growing and higher-margin drugs.

The move is one of the boldest steps yet by chief executive Vas Narasimhan to focus Novartis on more lucrative drugs that include those targeting cancer and rare diseases. In 2019, the group spun off its Alcon eye-care unit.

Narasimhan said on Thursday that it was “better to separate them [Sandoz and Novartis] in a clean and efficient way”.

Although private equity firms had shown interest in the business, no compelling bids were made, according to people familiar with the matter. Narasimhan, who has led the group since 2018, said the company had not received any formal offers.

Citi analysts said that given the Alcon spin-off, deteriorating conditions in financial markets and the intensifying pricing pressures on generic drugs, “a spin has looked the only viable route to separate Sandoz for some time”.

Founded by the Sandoz family, the business merged with Ciba-Geigy to create Novartis in 1996. Drugs manufactured by Sandoz, which employs about 20,000 people and generates almost $10bn in annual sales, are a staple of medicine cabinets in Germany, Austria and Switzerland.

Novartis had already attempted to shed parts of Sandoz to India’s Aurobindo in 2020, but competition concerns from US regulators scuppered the nearly $1bn deal in 2020.

Narasimhan said on Thursday that the generics sector was “a highly attractive market”.

“We will see, as now we have the full carve out financials available, how any of the external firms might view the business,” he said. “To be clear, I continue to expect that many external parties will be highly interested in this business.”

Novartis said it anticipated that the transaction would be completed in the second half of next year. The company added that it would be “generally tax neutral” and would require approval from shareholders.

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