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Biosimilars Loom Large As Sandoz Sets Stage For Spinoff

Capital Markets Days Highlight Off-Patent Biologics As Major Opportunity After Separation

Executive Summary

At a pair of capital markets days in New York and London, Sandoz has set out expectations for its post-spinoff future – with biosimilars featuring heavily in the company’s growth plans.

Key takeaways:

  • Sandoz spinoff from Novartis expected in H2 2023

  • Pipeline expected to add an additional $3bn in sales over the next five years

  • Core EBITDA margin expanding from a low of 18%-19% in 2023 to 24%-26% mid-term

  • Biosimilars business becoming increasingly significant, with different dynamics to small-molecule generics

  • Four key biosimilar launches on the horizon

As Sandoz grows ever closer to separating from its parent company Novartis in the second half of this year, the off-patent industry giant has set out its expectations for its post-spinoff future at a pair of capital markets days in New York and London, with biosimilars featuring heavily in its plans.

Setting out expectations for its pipeline to deliver “an additional $3bn in potential net sales over the next five years, with the mix shifting increasingly towards high-value biosimilars and complex generics,” Sandoz said that of this $3bn figure, just under half will come from biosimilars, while the remainder attributable to generics will be split 35% from complex generics and 65% standard generics.

Sandoz – which registered sales of $9.1bn in 2022 – expects mid-single digit net sales growth for 2023 as well as for the mid-term from 2024 to 2028.

And in terms of profitability, the company said it was forecasting that its core EBITDA margin would “expand to 24%-26% in the mid-term, from a forecast 18%-19% in 2023,” acknowledging that this year’s initial decrease from 21.2% in 2022 would be “driven by ongoing inflation and investments required to stand up Sandoz as a separate company.” (Also see "Sandoz Expects ‘Trough Year’ In 2023 As It Counts Cost Of Spinoff" - Generics Bulletin, 3 Feb, 2023.)

Gilbert Ghostine – who early this year was named chairman-designate of Sandoz (Also see "Who’s Hired? Sandoz Names Post-Spinoff Chair" - Generics Bulletin, 20 Feb, 2023.) – said he was “honored to have the opportunity to lead Sandoz into its exciting new future and believe this company will have the board, executive team and key capabilities it needs to succeed as a standalone company.” (Also see "Sandoz Names Board Ahead Of Novartis Spinoff" - Generics Bulletin, 19 May, 2023.)

Describing Sandoz as “an established European champion and global leader in generics and biosimilars with an impressive scientific heritage, a powerful purpose-driven strategy and one of the strongest brands in the industry,” Ghostine said he was “confident that our new company represents a compelling opportunity for both equity and debt investors.”

“With its leadership position in generics and biosimilar, Sandoz is at a very different point along the biopharma value chain compared to the innovative medicines business of Novartis,” Ghostine set out. “The limited synergies between the two businesses support the proposed spinoff, which offers numerous additional benefits.”

Ghostine said these benefits included “enhanced focus, with simplification and optimization of resources allocation to deliver on our ambitious objectives,” as well as “greater agility and freedom to operate and adapt to evolving off-patent medicine market conditions that will require lean and fast decision making.”

Other benefits cited were “improved accountability with ambitious value creation goals and clearer business objectives,” with Ghostine suggesting that “as a standalone company,” Sandoz could be “more aligned to the specificities of our industry.”

“Sandoz is the only global generics and biosimilars company that actually wants to be a generics and biosimilars company.”

Offering his own perspective on the healthy shape of Sandoz ahead of the upcoming spinoff, CEO Richard Saynor observed that “in recent years, we have reshaped our business for the future, driven by a strong leadership team with clear alignment on our vision.”

“We are focused on sales execution, while significantly expanding our pipeline, investing in targeted build-up of capabilities and developing strategic partnerships.” (Also see "Sandoz Chief Looks To Build On Recent Deals" - Generics Bulletin, 2 Mar, 2023.)

“Looking forward,” he said, “six strategic levers will drive long-term investor value.” These were “attractive market fundamentals; leadership and scale; multiple growth drivers; margin improvement; accelerated cash generation; and a compelling sustainability story.” The spinoff, Saynor said, would enable Sandoz “to deliver our full potential, with an attractive and sustainable financial outlook.”

One key aspect that Saynor underlined as unique to Sandoz was its intention to remain fully focused on the off-patent market. “Fundamentally,” he said, “the most important thing to reflect is that Sandoz is the only global generics and biosimilars company that actually wants to be a generics and biosimilars company.”

This echoed comments made earlier this year in a Generics Bulletin interview where Saynor suggested that other firms in Sandoz’s peer group were increasingly turning away from generics and biosimilars (see sidebar).

“Teva, clearly, its direction of travel from an outside point of view, is to become much more focused on innovation, including the assets that it has launched for migraine and Huntington’s disease [Austedo (deutetrabenazine) and Ajovy (fremanezumab)] which are very much among its focus,” he observed.

And “if you’re looking at Viatris, we would say, actually, in their last earnings report, they would say that they don’t want to be seen as a generic company, they want to be seen as a mature brands company and a differentiated generics company.”

“Ultimately, out of the three, Sandoz is the only one that’s actually saying we’re a generics company, and we’re proud to be a generics company, and we want to continue to be a generics company. And we think there’s more than enough opportunity for us to thrive and grow in that space.”

The ‘Only Company Positioned At Scale’ In Biosimilars

As part of his overview of Sandoz, Saynor compared the differing dynamics for the small-molecule generics and biosimilars markets, which had enabled biosimilars to become such a significant growth driver for the company.

“We look at our business for last year, sales of $9.1bn, of which 79% were made up by generics – with the small-molecule business growing at about 3% – and 21% the biosimilar business, growing at about 9%,” he pointed out.

It was “worth noting that the biosimilar business consistently grows years after launch in a way that the small-molecule business doesn’t,” Saynor noted. “It’s also one of the broadest portfolios globally: we have launched eight in-market biosimilars, again, a leading position.”

Sandoz has four major biosimilars on the near-term horizon, including a US rival to Humira (adalimumab) slated to launch within weeks, as well as versions of Tysabri (natalizumab), Prolia/Xgeva (denosumab) and Eylea (aflibercept) on the way.

“What’s exciting is the increasing proportion of biosimilars of our business over time,” he elaborated. “Five years ago it was about 15%. And clearly that proportion is accelerating with all the benefits in terms of growth and also in terms of margin expansion.”

While the firm will initially maintain a relationship with Novartis to manufacture and develop Sandoz’s biosimilars in the short term under a transitional service agreement, the company has recently been making a number of moves to allow it to stand alone as a leading biosimilars player.

This has included committing to invest at least $400m in building a new biologics production plant in Slovenia (Also see "Sandoz Unveils $400m+ Investment In Slovenian Biosimilars Plant" - Generics Bulletin, 9 Mar, 2023.), as well as a major partnership with Just-Evotec Biologics that supports the expansion of the Sandoz pipeline “from 15+ to 24 biosimilar assets” (see sidebar).

Placing Sandoz in the context of its global peer group for biosimilar development and commercialization, Saynor said the firm was “the only company positioned at scale.”

Certain other firms – large pure-play biosimilar developers and originators active in biosimilars – “don’t have the scale or presence in the market to leverage and drive value,” Saynor suggested. “Many of them struggle or have to form strategic partnerships in order to extract value.”

Whereas at the other end of the spectrum, there were traditional small-molecule generic players that “don’t have the capital infrastructure or technical capability to make the investment leap to deliver biosimilars.”

But at Sandoz, “we have both. We have the cash generation and the scale that small molecules bring, but the long-term cash and margin expansion opportunities the biologics have.”

“Sandoz defined this market. We were the first company to launch a biosimilar in Europe, Japan and the US, 15 years ago, and that biosimilar was human growth hormone Omnitrope (somatropin). And I’m absolutely delighted to say that today this is the single largest human growth hormone product in the world.”

“We’ve consistently taken share, consistently served our patients and consistently grown and developed our business,” Saynor summarized. “So we’re now ranked certainly in the top five, if not number one in the majority of the leading markets in terms of biosimilars.”

For more on Sandoz’s interests in biosimilars, read our multi-part interview with division chief Peter Stenico. (Also see "Slovenia Is Our Commitment; Evotec Is A Gamechanger: Sandoz’s Stenico" - Generics Bulletin, 8 Jun, 2023.)

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