2023-08-18 14:41:29
The Swiss pharmaceutical company Novartis has specified the plans to spin off the business with imitation products (generics): The subsidiary Sandoz Group AG, also based in Basel, is to go public on or around October 4th. Subject to approval at an Extraordinary General Meeting on September 15, Novartis shareholders are to receive one Sandoz share for every five Novartis shares they hold. The transaction is expected to be tax neutral.
According to analyst estimates, Sandoz’s market capitalization could be more than 20 billion Swiss francs. Ultimately, however, only the stock market price at the beginning of October will show the company value Sandoz can be attributed to. In any case, the weight class should be high enough to get a place in the premier class of the Swiss stock exchange, the Swiss Market Index (SMI). This stock market barometer brings together the 20 largest and most liquid stocks in Switzerland. There, the computer accessories supplier Logitech will probably lose its place to the newcomer from Basel.
With annual sales of USD 9.2 billion, Sandoz is the world’s leading manufacturer of off-patent medicines that can therefore be offered at lower prices. This business no longer fits Novartis’ strategy: the group wants to concentrate fully on the development and sale of patent-protected and therefore significantly higher-margin drugs, especially since the Executive Board sees hardly any synergies between the research-intensive core business and the price-competitive generic drugs.
Share price could come under pressure
The different strategic direction and the lower profitability of Sandoz could tempt a number of Novartis shareholders to sell the Sandoz shares allocated to them. As a result, the stock market price could come under pressure immediately after the initial listing at the beginning of October. It would be all the more important for the board of directors, led by the British Richard Saynor, to find new investors for Sandoz. It is no coincidence that Saynor has already formulated ambitious growth and earnings targets. By 2028, sales are expected to increase by a mid-single-digit percentage each year on average. At the same time, the operating profit margin (Ebitda) is expected to increase to 24 to 26 percent. In the first half of 2022, this figure was 20 percent.
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In the highly competitive bread and butter business with cold medicines or antibiotics, however, it is difficult to drive returns upwards. Higher prices and profit margins are most likely to beckon in the business with biotechnologically manufactured generics (biosimilars). In this field, the competitive and price pressure is not quite as great because it is much more difficult to produce biosimilars compared to chemically manufactured imitation products. Sandoz wants to further expand its position here and invest a lot of money, including in new production facilities.
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To date, the company has brought eight biosimilars to market; According to the company, there are another 24 candidates in the pipeline. Hyrimoz is one of the greatest beacons of hope. This anti-inflammatory was approved in the United States in early July and could one day bring in billions of dollars in sales, according to analysts.
In the issue prospectus published on Friday, Sandoz writes that generic drugs accounted for around 80 percent of all drugs sold globally and 25 percent of treatment costs. The company’s products reach approximately 500 million people in more than 100 countries each year. Similar to the previous parent company Novartis, Sandoz also wants to keep its future shareholders happy with dividends. Initially, 20 to 30 percent of the annual net profit will be distributed to the shareholders. By 2028, the payout ratio is to increase gradually to 30 to 40 percent.
In the issue prospectus, Sandoz also refers to the risks faced by the group on dozens of pages. These include increasing price pressure and growing competition, stricter state regulation and any legal disputes.
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