Novartis Accelerates Strategic Transformation: Sandoz CEO Resigns Amid Planned Spin-off

Richard Francis, CEO of Sandoz, a global leader in the generic pharmaceutical sector, has announced his resignation, citing the ongoing transformation of the Sandoz business unit by its parent company, Novartis.

Novartis has been restructuring its business over the past few years, particularly by reviewing divisions with sluggish growth. Since Vas Narasimhan took the helm at Novartis, significant changes have been initiated regarding Sandoz. In the past year, Novartis first sold its 36.5% stake (valued at $13 billion) in the consumer healthcare joint venture with GlaxoSmithKline to GSK. Subsequently, in late June 2018, it decided to spin off its Alcon eye care business into an independent company. The Sandoz division has also been placed under scrutiny.

The division’s sales declined by 2% in 2017 and by 3% in 2018, primarily due to increased headwinds in the generic drug market, such as falling drug prices in the United States. In September 2018, Novartis sold Sandoz’s dermatology and generic drug assets to India’s Aurobindo Pharma. The transaction included Sandoz’s U.S. generic and branded dermatology business along with its dermatology development center. The dermatology portfolio comprised topical antibiotics, gynecological and dermatological antifungals, anti-acne medications, topical anesthetics and analgesics, antipruritic agents, and dermatological chemotherapeutic drugs. Additionally, the deal covered non-dermatology oral medications, including products for autoimmune diseases, oncology, and hormone therapies, amounting to approximately 300 products as well as additional development projects.

Currently, Novartis is attempting to reverse Sandoz’s declining trajectory by aggressively expanding its portfolio of biosimilars and complex generics. Sandoz recently partnered with India-based Biocon to develop biosimilars in immunology and oncology, and reached commercialization and supply agreements with Gan & Lee Pharmaceuticals for insulin biosimilars. However, these efforts remain insufficient. During the company’s recent earnings conference call, Novartis executives emphasized that optimizing Sandoz’s portfolio and manufacturing operations for its product lines remains a top priority.

CEO Narasimhan recently stated, “In summary, over the next 18 months, we plan to establish Sandoz as an independent, autonomous unit within Novartis, enabling us to compete in an increasingly intense and challenging global generic drug market.” Subsequently, Francis announced his resignation, with his departure from Sandoz effective March 31. Francesco Balestrieri, currently the Regional Head of Europe for Sandoz, has been appointed as interim CEO. He will report to Novartis’ CEO, Narasimhan.

Francis began serving as the head of Sandoz in 2014 and has worked for the company for five years. In a statement, he said, “The past five years have been satisfying and rewarding.” He also pointed out the transformation that Sandoz is expected to undergo, describing it as a multi-year overhaul project whose future outcomes cannot be guaranteed. “Therefore, I have decided that now is the appropriate time to step down. I am proud of what the team has achieved. Together, we have expanded global access to medicines and benefited millions of patients. Notably, we successfully launched five biosimilar products.”

Narasimhan praised Sandoz for the success achieved under Francis’s leadership. He noted that during Francis’s tenure, Sandoz has become a leader in biosimilar development. Francis helped guide Sandoz’s growth by shifting market dynamics and overcoming resistance in the U.S. market. “As we now launch a multi-year transformation plan to make our business more autonomous, Francis has decided, for personal reasons, that he cannot commit to continuing to lead Sandoz through the completion of this transformation. I respect his decision and wish him all the best in the future.”

Balestrieri, the incoming successor, has been engaged in the commercial operations of generic drugs for the past eight years. His most recent position was as the head of Sandoz Europe, which accounts for half of Sandoz’s global organizational structure and sales volume. Balestrieri has worked at Novartis for 25 years. Although his familiarity with Novartis is an advantage, the new role requires him to manage Novartis’s global business, including the increasingly challenging U.S. market. Currently, pricing pressures on pharmaceuticals in the U.S. market have severely impacted the profit margins of generic drug manufacturers, while patent litigation has prevented most biosimilars from capturing significant market share.

While Novartis is undergoing a transformation of Sandoz, external observers speculate that the company plans to partially or fully divest the unit. Michael Nawrath, an analyst at Zuercher Kantonalbank, told Reuters, “The future restructuring plans for Sandoz will effectively align with Novartis’ current strategy, which includes a significant cleanup of certain assets. Although the Chairman of Novartis recently stated that there are no immediate plans to sell Sandoz, we believe that a spin-off similar to that of Alcon will eventually be implemented for Sandoz. This move would help transform Novartis into a focused, pure-play pharmaceutical company, consistent with its current development strategy.”