Novartis shareholders decide today: What you need to know about Sandoz’s IPO

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Friday has arrived: Novartis’ extraordinary general meeting is approaching. The only issue on the agenda is the division of Sandoz’s generic pharmaceutical division into its own joint stock company. Thus, shareholders decide on one of the largest IPOs of recent years. Sandoz shares will be traded on the stock exchange as of October 4. The general assembly is just a formality.

It has been known since 2018 that Novartis wants to turn problem child Sandoz, led by boss Richard Saynor (56), into an independent unit.

What’s giving the pharmaceutical giant a stomach ache?

Novartis gets in shape

Novartis will become weaker as a result of the spin-off and will therefore be better able to concentrate on its remaining business areas. The main field of “Innovative Medicines” focuses on the production and marketing of patent-protected medicines. A lucrative business; It’s the exact opposite of the generics section. Generics are cheap imitations of drugs; It costs less and margins are lower.

The pharmaceutical giant still sees potential in Sandoz; After all, Sandoz is the third largest generic drug manufacturer in the world. Hope lies in so-called biosimilars. As with generics, these are counterfeit products. These are produced organically and are not exactly the same as the original medicine, as is the case with generic drugs.

The split will take place on the stock exchange as follows: All Novartis shareholders will receive one Sandoz share for every five Novartis shares. Now they need to vote for this. The same is true for escrow receipts called ADRs traded in the United States. Theoretically, Novartis is five times larger than Sandoz.

The reality will be different: Vontobel analyst Stefan Schneider (56) predicts that Sandoz’s market value will be clearly lower. Other experts see it this way, too. Ultimately, the market determines the value of Sandoz stock.

On Wednesday, the Swiss Stock Exchange (SIX) announced: Sandoz will not be included in the SMI, the index of the 20 largest listed companies. As a result, all SMI funds must sell new Sandoz shares. On the other hand, funds that track the broader SLI and SMIM indexes should include Sandoz shares in their portfolios. In the beginning, there will be a lot of movement until a stable value emerges. The new Sandoz shares are already a gift for Novartis shareholders, because the share value of the Basel-based pharmaceutical giant is almost never decreasing.

Are biosimilars becoming widespread?

The question now is how successful Sandoz will be. As one of the world’s largest generic drug manufacturers, it can certainly stand on its own. Its sales increased by 5 percent in the first half of the year, reaching $4.8 billion. But the targets are high: Sandoz expects net sales growth to be in the mid-single-digit range in 2023 and over the medium term. Core operating profit margin is expected to increase from 18 percent to 19 percent this year and to 24 to 26 percent in the medium term.

Shareholders association Actares sees Sandoz’s forecast as “too optimistic”. The generic drug market is not very profitable, especially in Switzerland.

Vontobel analyst Schneider has difficulty assessing whether the spin-off will achieve its goals. Biosimilars are more important than generics. “It all depends on whether Sandoz’s biosimilars are successful in the US,” he says. The biopharmaceutical business has recently taken off in the US. These drugs have been available in Europe since 2006. Only one of the four Sandoz biosimilars planned for launch in the United States is on the market, and the remaining three have not yet been approved. Now everything depends on them.

Source :Blick