Sandoz: The next chapter

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  Christian Ingerl
  Redaktor

When the international healthcare industry gathered in early January for the annual J.P. Morgan Healthcare Conference in San Francisco, Sandoz’s appearance was among the most closely watched events on the program. For the first time, the generics and biosimilars specialist presented itself there as a fully independent company. CEO Richard Saynor used the stage to deliver a clear message to investors: the coming decade could become a decisive phase of growth for Sandoz, driven by a historic wave of patent expirations and a pipeline deliberately designed to capitalize on this moment.

Realignment

Since the spin-off from Novartis in fall 2023, Sandoz has strategically repositioned itself. The company no longer sees itself as a defensive cost-cutter operating in the shadow of large pharmaceutical groups, but as a global platform provider of affordable medicines with clear industrial strengths. In San Francisco, management emphasized how much has already been achieved. The commercial infrastructure is established worldwide, and production capacities have been strategically expanded in Europe, including new and upgraded sites for sterile biosimilar manufacturing. These facilities have been deliberately built larger than current demand requires, aiming to create a foundation for a level of demand that will only become fully visible in the second half of this decade.

Attractive pipeline

The background to this confidence lies in the so-called loss-of-exclusivity cycles. Over the next ten years, a large number of top-selling originator drugs will lose their patent protection. Sandoz puts the addressable market volume in this period at more than USD 600 billion, divided into traditional generics and increasingly complex biosimilars. It is not only the size of this market that is remarkable, but also the fact that Sandoz estimates that it already addresses around 60% of this volume with its existing pipeline. The company sees a structural growth opportunity in the biosimilar segment in particular, as regulatory hurdles are falling and healthcare systems are increasingly reliant on cost-effective alternatives to biological blockbusters.

A key signal to the capital market was the increased transparency of the pipeline. For the first time, Sandoz disclosed in detail which biosimilar projects are positioned along the expected patent expiries until the mid-2030s. Nine additional biosimilars are currently in an early development phase. This pipeline gives the growth path unusually long visibility. Analysts see this as a key reason why the long-term earnings outlook for Sandoz has so far been rather conservative in the market consensus.

The management also conveyed an image of high operational stability. In discussions with investors and analysts, the company emphasized that both the commercial and industrial platforms are already fully established. New products could be integrated into existing structures in the coming years without the need for significant additional investment or staff increases. This scalability is considered one of the most important competitive advantages, especially in the biosimilar business, where volume, experience and production reliability are decisive for market success.

Additional options

In the short term, several product launches are on the horizon that should provide noticeable impetus. These include biosimilars in oncological and ophthalmological indications as well as the resumption of US marketing of a Lucentis biosimilar. These products should help to bridge a temporary gap in the biosimilar timetable before the big wave of biological patent expirations begins in the second half of the decade. In parallel, Sandoz is preparing for new therapeutic areas, including the emerging market for generic GLP-1 agents, which could open up additional options in the long term.

This creates an exciting picture for the share. Sandoz is one of the few listed pure plays in the global generics and biosimilars market. The company combines a comparatively low risk structure with the prospect of structural growth over many years. It could be that the current consensus estimates do not yet reflect the full pipeline breadth of Sandoz. If the announced growth momentum materializes and margins increase towards the mid-20% range as planned, this could lead to a re-rating of the stock.

Investment solutions

Investors who are confident in a positive scenario can implement it through UBS’s Long Mini Future S54BKU. The product carries a leverage of 4.6, with a knock-out level at CHF 49.6614 – 18.8% below the current price. Almost twice the “power” is offered by Leonteq’s equivalent product, MSDB2T. However, the higher leverage of 8.6 comes at the cost of a smaller buffer: the barrier at CHF 55.4536 allows only a 9.3% decline before the product becomes worthless.

For more conservative investors, Julius Bär’s Barrier Reverse Convertible SBTCJB presents an attractive option. The newly issued product currently offers a yield potential of 10.7% p.a., with a solid risk buffer of 23.3%. Due to its callable feature, repayment is possible before the maximum one-year maturity.