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Novartis to Sell Sandoz's Dermatology Business to Aurobindo

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Novartis AG (NVS - Free Report) announced that it has agreed to sell selected portions of its generic division, Sandoz in order to focus on high-growth areas.

Terms of the Agreement

The company will sell Sandoz’s dermatology business in the United States and generic U.S. oral solids portfolio, to Aurobindo Pharma USA Inc., for $0.9 billion of cash and $0.1 billion of potential earn-outs.  The business to be sold includes approximately 300 products as well as additional development projects. The sale also includes branded dermatology businesses and its dermatology development center. The business generated sales of $0.6 billion in the first half of 2018.

Per the terms, Aurobindo will acquire the manufacturing facilities in Wilson, NC, as well as Hicksville and Melville, New York.

Meanwhile, approximately 750 employees in Hicksville, Melville, Wilson and Princeton, New Jersey as well as field representatives for the PharmaDerm branded dermatology business will be transferred to Aurobindo, upon closing of the deal.

The transaction is expected to close in 2019 following the completion of customary closing conditions.

The aim of the divestiture is to focus better on core areas like complex generics and biosimilars to achieve sustainable and profitable growth in the United States in the long term.

Our Take

Of late, Novartis is redirecting its focus to its core areas of growth, and the above-mentioned divestiture is a step in the same direction. 

Earlier, Novartis announced that it intends to spin-off its ophthalmology division, Alcon, into a separately-traded standalone company in order to grow as a medicines company solely.  The Alcon business wasn’t performing as per management’s expectations. Although it did revive in between, the company decided to spin-off the same in order to focus better on its legacy drug business. The company also exited its antibacterial business. Earlier, Novartis also divested its stake in the OTC joint venture with GlaxoSmithKline (GSK - Free Report) for $13 billion.

The company has a strong oncology portfolio including drugs like Afinitor, Exjade, Jakavi, Zykadia, Tasigna, Jadenu and Kisqali, which continue to boost sales. However, it is facing the loss of patent protection for some of the key drugs. Consequently, the company has restructured its business and plans to focus on building its portfolio in potential markets.

The company’s shares have declined 2.2% in the year so far compared with the industry’s growth of 4.4%.


Novartis is looking to solidify its presence in the gene therapy space. Earlier, it acquired U.S.-based clinical stage gene therapy company, AveXis, Inc.  It announced a licensing agreement with Spark Therapeutics (ONCE - Free Report) , covering development, registration and commercialization rights to voretigene neparvovec, outside the United States.

Zacks Rank & Stock to Consider

Novartis currently carries a Zacks Rank #3 (Hold).

A better-ranked large-cap drug stock is Bristol-Myers Squibb Company (BMY - Free Report) , sporting a  Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bristol-Myers’ earnings estimates increased to $3.62 from $3.43 for 2018 and to $3.83 from $3.65 for 2019 over the last 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 6.39%.

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