2022-07-04| M&ASpecial

As Private Equity Sale Becomes Less Likely, Novartis May Gravitate Towards Sandoz Spinoff

by Reed Slater
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The fate of Sandoz, a generic and biosimilar arm of Novartis, remains hanging in the air after several months of discussion regarding what to do with the underperforming part of the larger company. The rumor mill continues churning as talks of a spinoff are now the topic of conversation after several potential private equity purchases never came to fruition. 


The Decreasing Probability of a Private Equity Purchase


As early as February of this year, multiple companies considered bids of up to $25 billion to acquire Sandoz. Blackstone Inc. and Carlyle Group Inc. were among the most prominent in their desire to team up to purchase Sandoz, but the deal appears to have fallen flat since then. 

According to Bloomberg, which cited sources close to the matter, a private equity purchase is less likely now because of the challenges faced in a leveraged buyout during the unfavorable economic landscape in the industry. A leveraged buyout occurs when the buyer takes on considerable debt as part of the purchase. 

Other potential buyers that have reportedly kept an eye on Sandoz include Advent International, Hellman & Friedman, and KKR & Co. There have been no confirmed proposals from any company to purchase Sandoz yet. 

Novartis’ desire to deal with Sandoz started in an October 2021 press release stating its intent to review the Sandoz division strategically. The Swiss pharmaceutical giant said it would consider all options, from retaining the business to separation and everything in between. Since then, Novartis has not formally indicated which direction it will go but says it will provide an update by the end of 2022. 

Related Article: These Pharma Companies Are Laying Off Employees Due to Restructuring


Novartis’ Continued Efforts to Reorganize Amidst an Economic Downturn


Sandoz maintains that it continues to grow internationally, but its performance in the US has been in constant decline since the onset of the COVID-19 pandemic. The decline in US sales is the driving factor in Novartis’ potential to restructure or sell Sandoz. 

In addition to the Sandoz issue, Novartis reportedly intends to lay off 8,000 employees as part of a cost-saving restructuring of the company. A layoff that large accounts for 7.4% of Novartis’ workforce but could save the company up to $1 billion. 

A potential issue with restructuring or selling Sandoz is its deep ties to Novartis. In 2003, Novartis united all of its generic and biosimilar products under Sandoz while remaining one large entity. Nearly twenty years later, Sandoz and Novartis are intrinsically entwined, and untangling that relationship to sell or spinoff into an independent company will take time, consideration, and resources. 

As Novartis takes its time to make a decision regarding the generic arm of the company, Sandoz is still progressing its respiratory and oncology development programs. Earlier this year in February, Sandoz launched the generic lenalidomide, which is used to treat several hematology-oncology conditions. Nineteen European countries will have access to the essential oncology drug. In March, Sandoz acquired respiratory device company, Coalesce, to build on its existing assets in the respiratory medicine realm. 

While the fate of Sandoz remains in the air, it is clear that a private equity purchase is less likely due to the unfavorable economic conditions surrounding a potential deal. Hopefully, by the end of this year, Novartis will clarify its intentions regarding how it will handle Sandoz.


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