Sandoz: Initiating Coverage on Generics and Biosimilars Specialist With a CHF 28.50 Valuation

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.