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Novartis (NVS) Plans to Spin Off Generics Business Sandoz

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Novartis (NVS - Free Report) has announced plans to spin off Sandoz, its generics and biosimilars division, into a new publicly traded standalone company to separate this business following a strategic review.

Please note that in October 2021, Novartis announced the commencement of a strategic review of the Sandoz Division. This was because industrywide price competition among generic pharmaceutical companies and consolidation of buyers caused significant declines in sales and profits of Sandoz, particularly in the United States.

Management has decided that a company spin-off will be in the shareholders' best interest after examining all options.

Upon separation, the standalone Sandoz would be headquartered in Switzerland and listed on the SIX Swiss Exchange, with an American Depositary Receipt (ADR) program in the United States.

Sandoz generated $9.6 billion in sales in 2021.  Concurrent with second-quarter earnings, management stated that the generic business showed signs of recovery.

Shares of Novartis have lost 8.7% so far this year against the industry’s growth of 3.5%.

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The separation will enable Novartis to focus better on its legacy pharmaceutical business.

The transaction is expected to be tax-neutral for Novartis and is likely to be completed by the second half of 2023.

The company had earlier spun off its eye care division Alcon into a new company.

Novartis will focus on strengthening its solid position in five core therapeutic areas (Hematology, Solid Tumors, Immunology, Neuroscience and Cardiovascular), strength in technology platforms (Gene Therapy, Cell Therapy, Radioligand Therapy, Targeted Protein Degradation and xRNA) and a balanced geographic footprint.

In April, Novartis announced a new organizational structure to accelerate growth, strengthen its pipeline and increase productivity.  The changes are expected to generate SG&A savings of $1.5 billion (the previous target of $1 billion) to be fully embedded by 2024.

In 2021, Novartis sold its 33% stake in Roche (RHHBY - Free Report) for $20.7 billion. The company has been a shareholder of RHHBY since May 2001. NVS initiated a share buyback of up to $15 billion, of which $9.4 billion remains. The buyback is funded through the proceeds from the sale of 53.3 million shares of Roche.

Novartis is likely looking for strategic acquisitions in the pharma space using the cash proceeds from its stake sale in Roche.

Novartis carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the sector are Bolt Pharmaceuticals (BOLT - Free Report) and Dynavax (DVAX - Free Report) .  Both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Loss estimates for BOLT have narrowed to $2.25 from $2.87 in the past 60 days. BOLT surpassed earnings in three of the trailing four quarters, the average being 2.39%.

Dynavax’s earnings estimates have increased to $1.73 from $1.14 for 2022 over the past 60 days. Earnings of Dynavax have surpassed estimates in two of the trailing four quarters.


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