August 26, 2022: -Novartis decided to spin off its generics unit Sandoz to sharpen its focus on its patented prescription medicines, the Swiss group added on Thursday, acknowledging it had not received any formal offering for the business to date.

The company began a strategic review of Sandoz last October – examining a range of options, which include retaining the business, spinning it off, or selling it – following a protracted period of underperformance driven primarily by mounting price pressures in the off-patent drug sector.

On Thursday, Novartis has not received any formal binding offers for Sandoz. Still, if any “highly attractive” bids emerge, Novartis would fully consider them, CEO Vas Narasimhan told a media briefing.

Although, “the most likely case is that we will see through a spin,” he said.

Although Novartis had received interest from private equity buyers, the spin-off announcement will not be a surprise, given that it was seen as a likely outcome because of the poor market conditions and the struggling broader market for generics, analysts said.

“Previous spin-outs from pharma companies have created near-term excitement given the strong track record of pharma spins outperforming parents. In such situations, the competitive pressures in the generic space are likely to translate into lesser near-term interest,” Citi analysts wrote in a note.

Novartis is sharing already appropriately reflects the valuation of the two businesses, added J.P. Morgan analysts in a note.

Narasimhan explains that the market for generics is “beautiful” going forward, which cited $400 billion to $500 billion of branded products expected to go off-patent over the coming decade.

The standalone Sandoz is anticipated to be headquartered in Switzerland and listed on the SIX Swiss Exchange, with an American Depositary Receipt program in the United States.

The transaction, which is anticipated to be generally tax-neutral for Novartis, will be completed in the second half of the coming year, subject to market conditions, tax rulings and opinions, final board endorsement, and shareholder approvals, Novartis added.