Novartis: Sandoz Spinoff Looks on Track for Early October Following Shareholder Support

Following the recently announced shareholder support for the Sandoz spin-off, we expect Novartis NOVN to divest the unit in early October, likely by Oct. 4. We estimate the Sandoz generic drug business contributes just under 10% of Novartis’ fair value estimate. Also, we believe the innovative drug segment provides most of the support for Novartis’ wide moat, which largely rests on intangible assets driven by continual innovative drug development.

The divestment of the generic drug business will likely reduce some minor operating and strategic synergies. However, we don’t believe the divestment will create significant increased costs for the separate entities. Further, while Sandoz can provide a continuation of sales of branded drugs in the generic form once exclusivity ends, the profit margins on generic drugs are much lower, reducing the importance of this strategy.

The likely Sandoz divestment follows several other big biopharma divestitures, with the shared goal of increasing focus on the remaining innovative drug companies. Over the past five years, Eli Lilly, Johnson and Johnson, Merck, Pfizer, and GSK have all divested major segments, including generic drugs, animal drugs, and consumer products. The remaining biopharmaceutical companies have become more focused on branded drugs. Novartis’ upcoming Sandoz spinoff is following a similar strategy as other big biopharma firms.

The Sandoz spinoff also follows other recent Novartis divestitures, including the vaccine and diagnostics division, the consumer products group, and the ophthalmology unit Alcon. Over the time of these divestments, Novartis has largely focused on redeploying capital toward acquiring innovative new drug companies, a strategy we expect will continue.