Sandoz: Navigating Near-Term Headwinds Toward Long-Term Biosimilars Dominance

Sandoz, the generics and biosimilars division of Novartis, has emerged as a focal point for investors following an April 2025 rating upgrade from RBC Capital Markets. The broker’s “Outperform” call, paired with a price target of CHF 44, sent shares soaring 2.7% on the Zurich Stock Exchange—a sharp rebound from a 3% slump triggered by the company’s Q1 2025 results. This juxtaposition of short-term volatility and long-term optimism underscores a critical question: Can Sandoz sustain its trajectory amid near-term hurdles while capitalizing on its pipeline of 28 biosimilars?

RBC’s Bullish Case: Pipeline Power and Strategic Resilience

RBC’s upgrade hinges on two pillars: the commercial potential of Sandoz’s product pipeline and its ability to navigate macroeconomic and regulatory risks. Analysts highlighted the company’s leadership in biosimilars—a $50+ billion market by 2028—where Sandoz holds 28 assets in development, including denosumab (Prolia/Evenity biosimilar) for osteoporosis. This treatment alone could add $1.2 billion to annual sales by 2027, according to RBC’s estimates.

The broker also downplayed concerns over U.S. tariffs on European goods, arguing that Sandoz’s diversified supply chain and pricing flexibility would mitigate a potential $25–60 million annual cost hit. “Sandoz’s scale and geographic spread give it an edge in absorbing shocks,” RBC noted, reinforcing the CHF 44 price target—a 24% premium to the stock’s April 2025 level.

A Mixed Q1 2025: Strength in Biosimilars, Struggles in Generics

Sandoz’s Q1 results revealed a stark contrast between its two segments. Biosimilars sales rose 12% to CHF 605 million, driven by strong performance in markets like the U.S. and Europe. However, generic drug sales fell 8% to CHF 1.0 billion, pressured by pricing erosion in U.S. markets and the delayed launch of a private-label product due to a Johnson & Johnson injunction.

Currency headwinds further weighed on results: the strong U.S. dollar reduced sales growth by 2 percentage points, while margin contraction in the first half of 2025 is expected due to R&D investments and new product launches. Despite these challenges, Sandoz reaffirmed its 2025 outlook of single-digit sales growth and a core EBITDA margin of ~21%, a modest dip from its 2024 record of 20.1%.

The Bigger Picture: 2024’s Triumph and 2028’s Ambition

Sandoz’s 2024 performance set a high-water mark: net sales hit a historic CHF 10.1 billion, with biosimilars contributing 39% of total revenue. The company also proposed a 33% dividend hike to CHF 0.60 per share, reflecting its cash-generative model. Looking ahead, management aims for a core EBITDA margin of 24–26% by 2028, with 30% of sales coming from biosimilars—a goal supported by its late-stage pipeline.

Risks Lurking in the Near Term

While RBC’s optimism is justified, several risks could test Sandoz’s execution. The J&J legal battle, which delayed a key private-label product, remains unresolved. Additionally, the U.S. generics market faces relentless pricing pressure, with average selling prices for top drugs declining 15% annually since 2020. Macro factors also loom: Switzerland’s manufacturing PMI fell to a nine-month low in April 2025, signaling broader economic softness.

Conclusion: A Stock for Long-Term Value Hunters

Sandoz’s stock surge post-RBC upgrade reflects investor confidence in its biosimilars strategy—a segment projected to grow at 9% CAGR through 2030. With 28 pipeline assets, including high-value treatments like denosumab, the company is well-positioned to capitalize on expiring biologic patents. However, near-term headwinds—currency fluctuations, litigation, and tariffs—demand patience.

At current levels, Sandoz trades at ~14x 2025E EV/EBITDA, a discount to peers like Mylan and Teva. RBC’s CHF 44 target implies a 24% upside, achievable if Sandoz delivers on its 2028 margin goals and mitigates risks. For investors willing to look beyond quarterly noise, Sandoz’s blend of defensive cash flows and growth catalysts makes it a compelling play on the biosimilars boom—provided management can navigate the potholes ahead.

In the words of RBC’s analysts: “Sandoz’s long-term story is too strong to ignore.” The question now is whether the stock can convert that narrative into sustained outperformance.