* Says to update on Sandoz strategic review by end-2022
* Says options include "separation" or retaining the unit
* Lower prices drag Q3 Sandoz sales lower
* Forecast-beating Cosentyx, Entresto drive group sales
Oct 26 (Reuters) - Novartis has raised the prospect
of divesting its generic drugs unit Sandoz after years of
revamping the business, as price pressures mount in the
off-patent drug sector.
"Novartis has commenced a strategic review of the Sandoz
Division," the Swiss-based group said in statement alongside
quarterly results in which it lifted its peak revenue estimate
for its two best-selling pharmaceuticals.
Sandoz achieved sales of $9.7 billion last year, about 20
percent of the group's total, but Novartis on Tuesday warned it
expected the unit's operating income to fall faster than
previously expected this year.
"The review will explore all options, ranging from retaining
the business to separation, in order to determine how to best
maximize value for our shareholders," the statement said.
Novartis added it would have more to say on the review of
Sandoz, which makes cheaper copies of drugs that have lost
patent protection, by the end of next year.
"It's synergies versus freedom and the ability to allocate
capital and all of these considerations will of course be
undertaken now," Chief Executive Vas Narasimhan said in a media
He started setting up the generics business as an
independent unit and slashing costs in early 2019, shortly after
selling most of Sandoz's U.S. operations. Competitive pressures
on prices, which have long been a burden, increased in the third
quarter, with the U.S. market a particular challenge.
The company would not say whether rivals or financial
investors might buy it, or whether Sandoz could be floated on
the stock exchange.
Though the group's 2021 target for group earnings growth
remained at a "mid-single digit" percentage rate, Novartis
downgraded Sandoz's full-year outlook for operating income to a
decline by a "mid to high teens percentage rate," worse than
the "low to midteens seen previously.
"Given the continued drag on Novartis growth from Sandoz,
the announcement of a strategic review is likely to be well
received," JP Morgan analysts said in a research note.
Novartis shares gained 0.9% to 77.70 Swiss francs, while the
STOXX Europe 600 Health Care index edged up 0.2%.
The generic drugs industry has been in consolidation mode
for years. The trend culminated in the creation of Viatris
from the merger last year of Mylan and Pfizer's
Upjohn unit, which expects up to $17.9 billion in revenue in
2021. It is worth close to $17 billion on the stock market.
Israel's Teva and Sandoz, with roughly $10 billion in annual
generic drug sales each, are runners-up in the sector. Other
players include Perrigo, Sun Pharma and
Novartis reiterated that Sandoz will need to invest in the
launch of a raft of "biosimilar" drugs, which are cheaper
versions of complex biotech drugs that have lost patent
The group's third-quarter operating profit, adjusted for
special items, rose 10% to $4.47 billion, driven by
better-than-expected sales of arthritis and psoriasis drug
Cosentyx and heart failure treatment Entresto.
It increased its peak sales guidance for Cosentyx to at
least $7 billion from a goal of at least $5 billion previously,
and for Entresto to at least $5 billion, from at least $4
Third-quarter sales rose 6% to $13.03 billion, in line with
the average analyst estimate compiled by Refinitiv, while core
net income increased 10% to $3.83 billion versus a market
consensus of $3.7 billion.
(Reporting by Ludwig Burger; Editing by Michael Shields and