Sandoz – Mixed Messages?

At the Forbes Healthcare Summit in New York in November 2018, Vasant Narasimhan, CEO of Novartis explained how his strategy is to narrow his focus to make Novartis a "breakthrough medicines company" divesting its consumer health joint venture as well as announcing the spinoff of its eye-care business Alcon.

The question this statement begs is: How does Sandoz fit into this new focus? Generics are not „breakthrough medicines“. Way less so than the cutting edge business of Alcon. In September 2018 Novartis announced it had agreed to sell selected portions of its Sandoz US portfolio; Sandoz US dermatology business and its generic US oral solids portfolio.

Aim of the sale as stated by Richard Francis, CEO of Sandoz and Member of the Novartis Executive Committee was to; "Sharpening our portfolio focus in the US allows us to devote more time and resources toward our strategy of bringing complex generics, value-added medicines and biosimilars to patients in the US, creating higher value and opening up access to important medicines where alternatives are truly needed. Through this transaction, we are refocusing our business but also striving to ensure continuity of supply of important long-used generic medicines for patients and customers in the US."

Purchasser is Aurobindo Pharma USA Inc., Who will pay around $1 Billion for the portfolio of around 300 products as well as various manufacturing facilities.

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

One should also note, a few months before the sale of selected portions the Sandoz US portfolio; was the message from Novartis CEO Vasant „Vas“ Narasimhan to investors conceding that the company does not yet have a good fix on how to make sure its Sandoz unit is a leader in the coming years.

Narasimhan further mentioned that Europe, Sandoz is doing fine. But Narasimhan said in the U.S., where generic pill prices have cratered and biosimilar uptake has been limited, Sandoz is struggling.

“We don't have the answer yet on how to ensure that Sandoz is a leader in the decades to come. But what I can say is that we are working on in it.... to make sure we have a thoughtful, disciplined approach to ensuring Sandoz' success.” Narasimhan said in a recorded presentation in which he went over the entire Novartis business.

Surely though if Narasimhan wants to narrow his focus to make Novartis a "breakthrough medicines company," then Sandoz for many reasons is posing a distraction?

Swiss newspapers (e.g. Tages-Anzeiger) have reported, referring to to statements by Vasant Narasimhan at an investor meeting and apparently to employee representatives that the Novartis generics unit, Sandoz, should become an independent entity within two years and that "all strategic options" were being checked.

Novartis immediately countered these reports that Novartis was preparing to spin-off Sandoz. "We are 100% committed to the Sandoz business," claimed a Novartis spokesman. "We want to transform Sandoz and make it as strong as possible in the global generics business. Sandoz should remain a pillar of Novartis, a sale is currently not planned.“

A newer fly in the ointment exacerbating matters for Novartis, is that Sandoz is currently being accused in the USA of participating in a massive price fixing scheme together with other Generics companies with the alleged ringleader Rajiv Malik, being an alumni of Novartis. Rajiv Malik served as Head of Global Development and Regulatory at Sandoz from September 2003 to July 2005, before moving to head the generics company Mylan.

A representative of Novartis stated, "Sandoz takes its obligations under the antitrust laws seriously. We will continue to be committed to providing high-quality affordable medicines to US patients, and conducting business with customers and the government with integrity."

Mylan’s statement in response to the Anti-trust announcement. "We have been investigating these allegations thoroughly and have found no evidence of price fixing on the part of Mylan or its employees. Our review of the Connecticut Attorney General's press release underpinning the complaint does not change our views."

Allegations of price fixing are emanating from State Attorneys Generals from 45 US States and is led by Connecticut's State Attorney George Jepsen.

The Washington Post reported a few weeks ago that this is most likely the largest cartel in the history of the United States. The Washington Post also surmised that as the case gains traction, already a federal antitrust case is a serious escalation, more prosecutorial action is forseen. Two former executives of one company have already been arrested and pleaded guilty to federal criminal charges and are cooperating with the Justice Department in a parallel criminal case.

2019 will certainly be a year of challenges for everything Sandoz.