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Novartis (NVS) Sandoz Presents Standalone Growth Strategy

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Novartis’ (NVS - Free Report) generic unit, Sandoz, outlined its growth strategy in New York City as a standalone company following the proposed 100% spin-off from Novartis.

Sandoz reported sales of $9.1 billion in 2022.  Sandoz forecasts mid-single digit net sales growth for 2023 as well as for the time frame of 2024 to 2028, with the expanding product pipeline estimated to contribute an additional $3 billion in potential net sales over the next five years. Sandoz estimates the product mix to shift increasingly toward high-value biosimilars and complex generics. Per the company, the biosimilar pipeline has trebled in size over recent years, now with 24 products on top of a core generic pipeline of more than 400 products.

Four key upcoming biosimilar launches include Humira (adalimumab), Tysabri (natalizumab), Prolia/ Xgeva (denosumab) and Eylea (aflibercept).

EBITDA margin is expected to expand to 24% to 26% in the 2024-2028 timeframe, up from the expected 18-19% in 2023. The EBITDA margin forecasted in 2023 is down from 21.2% obtained in 2022, driven by ongoing inflation and the investments required to establish Sandoz as a separate company. Free cash flow is expected to be more than double by 2028, from $0.8 billion in 2022.

With these financial targets, Sandoz expects to pay shareholders a dividend of 20-30% of core net incomings in 2023, which is expected to go up to 30%-40% in the 2024 -2028 timeframe.

Shares of Novartis have gained 10.5% in the year so far compared with the industry’s 0.9% growth.

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Novartis previously announced that it planned to spin off Sandoz into a new publicly traded standalone company following a strategic review. Due to industry-wide price competition among generic pharmaceutical companies and the consolidation of buyers, Sandoz experienced significant declines in sales and profits, particularly in the United States. The planned spin-off of the Sandoz unit remains on track for the second half of 2023. With the planned spin-off, Novartis is looking to become a pure-play pharmaceutical company.

Novartis’ performance in the first quarter was better than expected, as earnings and sales beat estimates and guidance was raised. This boosted investors’ sentiment and increased its share price.

While the older drugs face generic competition, the continued strong performance of Entresto, Pluvicto, Kesimpta and Kisqali fuel growth and should maintain momentum. Pluvicto and Scemblix saw very strong launches and recorded solid sales. Demand for Pluvicto continues to exceed supply in the United States. The Leqvio launch continues to progress well.

Zacks Rank and Stocks to Consider

Novartis currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the healthcare sector are Ligand Pharmaceuticals (LGND - Free Report) and Novo Nordisk (NVO - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 30 days, earnings estimates for LGND have increased by 46 cents per share to $5.25. LGND topped earnings estimates in two of the last four quarters and missed in the remaining two, the average surprise being 21.50%.

Over the past 30 days, estimates for NVO’s 2023 earnings per share have risen by 12 cents to $5.07. Novo Nordisk topped earnings estimates in three of the last four quarters and missed in the remaining one, the earnings surprise being 0.35%, on average.



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