Novartis may spin off generic unit Sandoz to maximise value

(Image: Reuters)

Novartis has raised the prospect of divesting its generic drugs unit Sandoz after years of revamping the business, saying on Tuesday it would pursue whatever option would deliver most value for shareholders.

"Novartis has commenced a strategic review of the Sandoz Division," the Swiss-based group said in statement alongside quarterly results in which it lifted its peak revenue estimate for its two best-selling pharmaceuticals.

"The review will explore all options, ranging from retaining the business to separation, in order to determine how to best maximize value for our shareholders," the statement said.

Novartis added it would have more to say on that review by the end of next year.

"It's synergies versus freedom and the ability to allocate capital and all of these considerations will of course be undertaken now," Chief Executive Vas Narasimhan said in a media briefing.

He started setting up the generics business as an independent unit and slashing costs in early 2019, shortly after selling most of Sandoz's US operations. Competitive pressures on prices, which have long been a burden, increased in the third quarter.

Though the group's 2021 target for group earnings growth remained at a "mid-single digit" percentage rate, Novartis cut the Sandoz unit's full-year outlook for operating income to a decline by a "mid to high teens” percentage rate," worse than the "low to midteens” seen previously.

Novartis reiterated that Sandoz will need to invest in the launch of a raft of "biosimilar" drugs, which are cheaper versions of complex biotech drugs that have lost patent protection.

The group's third-quarter operating profit, adjusted for special items, rose 10% to $4.47 billion, driven by higher sales of arthritis and psoriasis drug Cosentyx and heart failure treatment Entresto.

It increased its peak sales guidance for Cosentyx to at least $7 billion from a goal of at least $5 billion previously, and for Entresto to at least $5 billion, from at least $4 billion.

Third-quarter sales rose 6% to $13.03 billion, in line with the average analyst estimate compiled by Refinitiv, while core net income increased 10% to $3.83 billion versus a market consensus of $3.7 billion.