Company Reports

No-moat Sandoz reported first-quarter earnings that came largely as we expected. Total sales of $2.5 billion were up 4.5%, or 6% in constant currencies, as growth across all three regions and a strong biosimilars business made for a solid start to the year. After adjusting our model and baking in a more favorable USD/CHF exchange rate compared with last quarter, we slightly raised our fair value estimate to CHF 32 per share from CHF 31.

Sandoz is one of the largest off-patent pharmaceutical manufacturers in the world. It generates roughly 75% of sales from generic drugs and the remainder from biosimilars and it has a significant presence in Europe, a region that generates around half of its total sales. Generics, on average, suffer low- to mid-single-digit price erosion year over year, but we expect Sandoz to offset cost headwinds through more volume and new product launches. The firm also seeks to dedicate roughly $600 million over the next five years in expanding generics capacity which could help lift margins upon successful integration. We also forecast Sandoz to expand its presence in complex generics, such as injectables. They are more difficult and costly to develop/manufacture but also face less competition which helps to maintain higher price and margins compared with simple generics.

Sandoz is one of the largest off-patent pharmaceutical manufacturers in the world. It generates roughly 75% of sales from generic drugs and the remainder from biosimilars and it has a significant presence in Europe, a region that generates around half of its total sales. Generics, on average, suffer low- to mid-single-digit price erosion year over year, but we expect Sandoz to offset cost headwinds through more volume and new product launches. The firm also seeks to dedicate roughly $600 million over the next five years in expanding generics capacity which could help lift margins upon successful integration. We also forecast Sandoz to expand its presence in complex generics, such as injectables. They are more difficult and costly to develop/manufacture but also face less competition which helps to maintain higher price and margins compared with simple generics.

No-moat Sandoz reported mixed fourth-quarter earnings. Total sales of $2.5 billion were up 10.8% year over year but margins were weaker than we expected. After updating our model, we maintain our fair value estimate of CHF 31 per share, as our adjustments did not have a material impact on our valuation.

No-moat Sandoz announced on Jan. 22 that it has signed an agreement to acquire Cimerli from Coherus BioSciences for $170 million plus inventory costs. The deal is anticipated to close in the first half of the year, and we do not expect any regulatory challenges. Cimerli (ranibizumab) is a biosimilar to Genentech’s Lucentis, which treats wet age-related macular degeneration, diabetic macular edema, and diabetic retinopathy. Cimerli was approved with interchangeability in August 2022 and launched in October. After accounting for the acquisition and the time value of money, we raise our fair value estimate to CHF 31 from CHF 28.50.

Sandoz is one of the largest off-patent pharmaceutical manufacturers in the world. It generates roughly 75% of sales from generic drugs and the remainder from biosimilars and it has a significant presence in Europe, a region that generates around half of its total sales. Generics, on average, suffer low- to mid-single-digit price erosion year over year, but we expect Sandoz to offset cost headwinds through more volume and new product launches. The firm also seeks to dedicate roughly $600 million over the next five years in expanding generics capacity which could help lift margins upon successful integration. We also forecast Sandoz to expand its presence in complex generics, such as injectables. They are more difficult and costly to develop/manufacture but also face less competition which helps to maintain higher price and margins compared with simple generics.

We are initiating coverage on Sandoz with a fair value estimate of CHF 28.50 per share and a no-moat rating. Sandoz is one of the largest generic pharmaceutical manufacturers in the world, earning over $9 billion annually from off-patent drugs. Once part of Novartis, Sandoz spun off and went public in October 2023. The firm generates roughly 75% of its sales from generic drugs and the remainder from biosimilars, and it has a significant presence in Europe, a region that generates around half of its total sales. Generics, on average, face low- to mid-single-digit year-over-year price erosion due to competition and pricing pressures from external forces in the drug supply chain. We expect Sandoz to absorb these headwinds and work to offset them through continuous product launches and tuck-in acquisitions in opportunistic areas. We expect biosimilars to be one of Sandoz’s key catalysts for future growth. Several blockbuster innovative drugs are set to expire over the next five years, and Sandoz has many upcoming launches to benefit from these losses of exclusivity.

Sandoz is one of the largest off-patent pharmaceutical manufacturers in the world. It generates roughly 75% of sales from generic drugs and the remainder from biosimilars and it has a significant presence in Europe, a region that generates around half of its total sales. Generics, on average, suffer low- to mid-single-digit price erosion year over year, but we expect Sandoz to offset cost headwinds through more volume and new product launches. The firm also seeks to dedicate roughly $600 million over the next five years in expanding generics capacity which could help lift margins upon successful integration. We also forecast Sandoz to expand its presence in complex generics, such as injectables. They are more difficult and costly to develop/manufacture but also face less competition which helps to maintain higher price and margins compared with simple generics.