MNC "Slimming" is here again!

Another giant reported the news of spin-off or divestiture of the generic drug business, this time the protagonists are Novartis and Sandoz
.

On October 26, Novartis announced its third quarter 2021 financial report, achieving net sales of US$13.
03 billion, a year-on-year increase of 5%; net profit of US$2.
758 billion, a year-on-year increase of 43%
.
Among them, Novartis China's performance grew strongly, with sales in the third quarter reaching 839 million U.

At the same time, Novartis's generic drug business (Sandoz) net sales were US$2.
402 billion, a year-on-year decrease of 2%
.

The financial report shows that Novartis's innovative drug business is completely different from the generic drug business
.
Novartis Pharmaceuticals expects that the sales of its innovative drug business will grow in the mid-single digits, while the sales of Sandoz's generic drug business will drop in the mid-single digits

This may also become the "fuse" for Novartis to re-examine the divestiture of the generic drug business
.

01 Cosentyx and Entresto drive innovative business growth

The financial report shows that Novartis’s operating income in the third quarter was US$3.
233 billion, compared with US$2.
412 billion in the same period last year, a year-on-year increase of 34%
.
Realized net sales of 13.

From the perspective of specific business segments, the net sales of innovative drugs business was US$10.
628 billion, a year-on-year increase of 8%
.
Among them, the sales of the pharmaceutical sector increased by 8%, and Entresto, Cosentyx, and Zolgensma grew strongly, all increasing by more than 20%

At the same time, Cosentyx is also Novartis’s highest-selling product, followed by Entresto as the runner-up in sales of innovative drugs; Gilenya won the third place in Novartis’s innovative drug business with sales of US$703 million
.

Novartis' oncology division achieved 5% growth, of which Kisqali, Jakavi, Promacta/Revolade showed strong growth momentum
.
Kisqali increased 27% to achieve quarterly sales of 232 million US dollars, Jakavi increased 26% to achieve sales of 426 million US dollars, and Promacta/Revolade sales also increased 18% to 522 million US dollars

In addition, Novartis pointed out that the competition brought about by the listing of generic drugs had a 3% negative impact on the performance of innovative drugs
.

Novartis CEO Vas Narasimhan said that the strong growth of Cosentyx and Entresto has enabled Novartis to achieve strong innovative drug performance, enabling the company to improve its peak sales guidance for these products
.
Novartis has raised its forecasts for the peak sales of Cosentyx and Entresto.

02 Consider again selling Sandoz

Contrary to the 8% increase in net sales of over 10 billion U.
S.
dollars in the innovative drug business, the performance of the generic drug business is not very optimistic
.

According to the financial report, Novartis's generic drug business (Sandoz) net sales were US$2.
402 billion, a year-on-year decrease of 2%
.
Novartis said that although the sales of generic drugs increased by 7 percentage points, the decline in drug prices due to competition caused a negative growth of 9%

Novartis said it is considering selling or divesting its generic drug business Sandoz
.

Narasimhan pointed out that the company has already begun a strategic review of Sandoz to determine whether it is still suitable for Novartis' long-term growth plan
.
"Novartis is exploring various options from retaining the business to separating it

Sandoz was founded in 1886 and was also a division of Novartis Group in 1996.
Sandoz was originally launched in 2003 as Novartis's generic drug division
.
In 2020, Sandoz’s net sales were US$9.
6 billion, accounting for 20% of the group’s total net sales
.

Sandoz is one of the global giants of generic drugs and biosimilars.
Its main products retail generic drugs, anti-infectives and biological products
.
The global product portfolio includes approximately 1,000 molecules, covering all major therapeutic areas, and products covering more than 500 million patients, occupying an important global position in biosimilars and generic antibiotics
.

Although Sandoz has become a world leader in the manufacture of generic drugs, and its sales have increased in recent years, the company is still hit by various factors, exerting downward pressure on generic drugs
.
Although Sandoz has switched to higher-value products such as biosimilars, its revenue has still fallen
.

Regarding the review and divestiture of Sandoz, Narasimhan explained that Novartis has long wanted to make Sandoz "more autonomous", including in terms of production, and the process is now deep enough to begin a strategic review
.
"This is the synergy and the degree of freedom and the ability to allocate capital.
Of course, all these considerations will be carried out now," Narasimhan said.
There will be more review details by the end of 2022
.

As soon as the news came out, some US stock analysts pointed out that Sandoz’s continued drag on Novartis’s growth in the past may make strategic reviews popular with shareholders and greatly increase the possibility of spin-offs
.

This is not the first time Novartis has tried to sell or divest Sandoz
.
Sandoz’s performance continued to decline from 2017 to 2018-a 2% decline in 2017; a 3% decline in 2018, and there has been a trend that detracts from Novartis’s performance growth
.
Therefore, in 2018, Novartis plans to sell part of Sandoz's business
.

Novartis announced that it would sell Sandoz's US dermatology business and generic oral solid dosage product portfolio to Aurobindo Pharma USA Inc, the American subsidiary of Indian generic drug company Aurobindo, for US$1 billion
.
The transaction includes approximately 300 products and additional development projects, including Sandoz's American generic & branded dermatology business and its dermatology development center
.
As part of the transaction, Arabindo will also acquire Sandoz's manufacturing facilities in Wilson, North Carolina, and Hicksville and Melville, New York
.
After the transaction closes, approximately 750 Sandoz employees in Hicksville, Melville, New Jersey and PharmaDerm brand dermatology business representatives will also be transferred to Arabindo
.

According to Novartis's plan, the transaction with Arabindo should have been completed in 2019
.
After the transaction is completed, Sandoz America’s product portfolio will include biosimilars, value-added drugs and complex biosimilars, such as injections, respiratory and ophthalmological drugs
.
Sandoz will continue to focus on clinical development, business development and investment in these areas
.

However, things backfired, and the $1 billion deal eventually fell through
.

In April 2020, Novartis announced that it had reached an agreement with Aurobindo Pharma USA Inc.
to terminate the sale of Sandoz's American general oral solid and dermatological products business to the latter.
The reason for the termination was that the transaction did not receive the Federal Trade Commission within the expected time.
(FTC) approval
.
The termination of the transaction also disrupted the previous process of Novartis' strategic adjustments to a certain extent
.

Regarding Novartis’s sale of Sandoz’s business, some analysts have said that the global generic drug market is in a wave of price cuts.
The era of meager profit for generic drugs has come in full swing.
Sandoz’s revenue has been declining for many years.
If Novartis does not divest generic drugs as soon as possible Business and performance pressure will continue to escalate
.

03 MNC "Slimming" Normal

Novartis is not the first multinational company to try to divest its generic drug business, and obviously it will not be the last
.

In recent years, the global generic drug market has been in a wave of price cuts, and the era of meager profits for generic drugs has come in full swing
.
Multinational giants such as Pfizer, Bayer, GSK, Novartis, Sanofi, etc.
are all accelerating the divestiture of generic drugs, while focusing more on the innovative research and development of tumors and immune preparations
.

The representative of the multinational giant "Broken Arm" is Pfizer
.
Pfizer split its business from the original two businesses into three major business units: innovative drugs, mature drugs and consumer health
.
Pfizer put the generic drug business into Pultron, merged with Mylan, and established Huizhi
.
After the spin-off of the generic drug business Puqiang, Pfizer's ranking of global pharmaceutical companies in 2020 fell from third to eighth; consumer health business merged with GSK consumer health business; and the innovative drug part remained in operation, and continued to accelerate as the main body Development
.
Pfizer has said that after the divestiture of generic drugs and consumer health businesses, the new Pfizer will be a smaller, science-based, new company focused on innovation
.

Novartis once completed the acquisition of Alcon with approximately US$52 billion in 2011, but Alcon’s growth slowed after reaching US$10 billion in revenue in 2011.
By 2015, even the revenue was only US$9.
8 billion, no increase.
Fall back
.
Alcon's performance fell short of expectations, and Novartis also announced in 2018 a plan to spin off all its Alcon eye care equipment businesses
.

At the end of 2020, Merck announced the spin-off of the company's business, and the spin-off of women's health, biosimilar drugs and some mature drugs into the new company Organon
.
After the divestiture, Ogalon will be responsible for the management of the life cycle of the drug after the launch, while the company's R&D pipeline will be in charge of Merck
.
In June of this year, Merck announced that the company had completed the spin-off of Ogalon
.

GSK also announced in June this year that it would split its consumer healthcare business and set up "New GlaxoSmithKline"
.
According to the plan of GSK CEO Emma Walmsley, the new GSK will focus on vaccines and specialty medicines after the consumer healthcare business is divested
.
GSK plans to spin off its consumer healthcare business into an independent company by the middle of 2022
.
According to the plan, the new GSK will focus on infectious diseases, AIDS, oncology and immunology, and will reach 33 billion pounds (46 billion US dollars) in sales in 2031
.

Perhaps, for multinational giants, the strategic layout of large-scale acquisitions and mergers and expansion of their own body has been replaced by splitting non-core sectors and focusing on core businesses
.