The multinational pharmaceutical company plans to sell its business

Yesterday, according to Bloomberg, people familiar with the matter said that Novartis is considering selling its ophthalmology and respiratory division, planning to raise funds to invest in cutting-edge drugs.

The sale of Novartis' ophthalmology and respiratory businesses could start in 2023, after the completion of Sandoz's divestiture, people familiar with the matter said. Deliberations are still ongoing and it is uncertain whether any asset sales will result. According to rumors, Novartis' ophthalmology business alone is valued at about $5 billion.

The ophthalmic respiratory field has relatively small reserves

In September, Novartis unveiled a new strategy based on eight core brands and focusing on five therapeutic areas at an investor event, aiming to become one of the top five pharmaceutical companies in the United States by 2027. The five core therapeutic areas include cardiovascular, immunology, neuroscience, solid tumors and hematology.

Compared with these five core therapeutic areas, Novartis has a small drug reserve in the respiratory and ophthalmic fields.

In 2019, with the spin-off of Alcon's ophthalmology business, Novartis shifted its focus to developing compounds that protect and restore vision, with research priorities including diseases such as glaucoma and age-related macular degeneration.

At present, Novartis' most important ophthalmic product is Lucentis, which is developing a treatment for macular degeneration in the elderly in cooperation with Roche, with a revenue of 2.16 billion euros last year. But Lucentis' revenue is also declining due to competition from generic drugs in the market. Novartis' next-generation macular degeneration drug, Beovu, has yet to achieve commercial success.

In the respiratory business, Novartis' respiratory and allergy drugs segment generated sales of $2.1 billion last year, mainly from the asthma drug Xolair, also in partnership with Roche. The two companies are testing Xolair as a drug to treat food allergies, and the product also has strong competitors in the market.

Continue to "slim down" and focus on innovation

In order to focus on the research and development of higher-margin innovative drugs, Novartis has been in the process of organizational restructuring and continuous "slimming" in recent years.

In April this year, Novartis made a series of internal organizational changes to focus on high-growth areas. First, the two business units of Novartis Oncology and Novartis Pharma were merged to form a unified innovative drugs business unit, while streamlining some institutions and departments. The program will save Novartis nearly US$1.5 billion to help develop new drugs and drive them to market.

Then in August this year, Novartis' plan to spin off its generic drug division Sandoz was finally settled, and the spin-off process is expected to be completed in the second half of next year.

Sandoz is a global giant in generic and biosimilars, yet in recent years, price pressure has been affecting Sandoz and the generic drug industry as a whole. In 2021, Sandoz achieved sales revenue of US$7.5 billion, down only 2.6% from the previous year, but it is worth mentioning that Sandoz's sales reached US$9 billion five years ago.

In fact, since 2018, Novartis has begun to intensively divest businesses other than innovative drugs in order to seek business streamlining. In 2018, Novartis sold its stake in OTC, a joint venture with GSK, for $13 billion; divested Alcon's eye care business in 2019; In November 2021, Novartis signed a US$20.7 billion deal with Roche to sell Roche shares acquired since 20 years ago, which will generate approximately US$14 billion in revenue for Novartis.

In contrast to the continuous decline in the generic drug business, innovative drugs have become the backbone of Novartis' performance. According to the 2021 financial report, innovative drugs accounted for more than 80% of Novartis' annual revenue of US$51.6 billion. Moreover, on this basis, Novartis is also constantly increasing the research and development of innovative drugs and concentrating more resources on the new drug research and development department.

In 2021, Novartis' R&D investment was US$9.54 billion, accounting for more than 18% of revenue. This percentage ranks second among all multinational pharmaceutical companies with revenues of more than $50 billion. At the same time, Novartis has more than 20,000 R&D personnel worldwide.

Novartis expects that among the products approved by 2026, 20 new drugs are expected to become blockbuster drugs with annual sales of more than $1 billion.