Bank CEOs meet with Trump to discuss Fannie Mae and Freddie Mac - Bloomberg
Investing.com -- Sandoz AG (SIX:SDZ) has been downgraded to "neutral" by analysts at UBS Global Research following a strong share-price performance year-to-date.
Shares of the Swiss company were down 3.7% at 07:15 ET (12:15 GMT).
The analysts no longer see upside potential in consensus expectations for Sandoz’s biosimilar growth and anticipate potential downside to the company’s 2025 growth projections.
UBS forecasts a 3% lower growth rate than consensus estimates as Sandoz prepares to issue its full-year 2025 guidance on March 5.
While Sandoz remains well-positioned to capitalize on the biosimilar market, UBS analysts now prefer Galderma within the Swiss mid-cap sector.
Foreign exchange rate adjustments have led to a 3.7% average cut in UBS’s 2025-2029 earnings per share estimates. However, due to CHF weakness, the firm has raised its price target for Sandoz to CHF 44.
UBS expects Sandoz’s biosimilar sales for 2025 to come in 2% below consensus estimates, with multiple launches anticipated throughout the year.
These include the U.S. launches of ustekinumab (bStelara) in February, denosumab (bProlia/Xgeva) in May, natalizumab (bTysabri) at an unspecified point in 2025, and fourth-quarter European launches of denosumab and aflibercept (bEylea).
The recent strength in Sandoz’s share price is seen as reflecting market confidence that the company will secure a pharmacy benefit management contract for ustekinumab, similar to its previous success with adalimumab. More details on this are expected at the company’s financial results presentation in March.
UBS predicts fewer biosimilar launches in 2026 and 2027. Generic semaglutide is expected in Canada, Brazil, and Mexico in 2026.
The US launch of biosimilar aflibercept is uncertain due to lawsuits, and its potential market may be smaller because Amgen (NASDAQ:AMGN) already launched its version.
UBS analysts have outlined several factors that could lead them to take a more positive stance on Sandoz’s stock in the future.
These include stronger-than-expected market share gains from new biosimilar launches, a faster increase in U.S. adalimumab market share, and improved margin leverage.
Conversely, factors that could further weaken sentiment include limited margin expansion, slower biosimilar growth, and increased pricing pressure in generics.
The valuation of Sandoz has been based on a 10.5x enterprise value-to-EBITDA multiple over a 12-month forward period, guided by a discounted cash flow model.
UBS cites litigation risks as a potential headwind for the company. Since its spin-off, Sandoz has settled $540 million in litigation-related costs and provisioned an additional $265 million for U.S. generic antitrust litigation.
Additional uncertainties stem from the EU Urban Waste Water Treatment Directive, which could impose higher costs on European pharmaceutical manufacturers.
Despite these challenges, UBS believes Sandoz can achieve its revenue growth targets, with a projected 6.5% compound annual growth rate from 2023 to 2028.
Generics, which comprise 77% of Sandoz’s business, are expected to grow at a slower 2.7% rate, while biosimilars, accounting for 23% of revenue, are forecasted to grow at 16.2%.
UBS sees the company’s goal of adding $3 billion in revenue by 2028 as realistic, driven primarily by biosimilar expansion.
UBS forecasts that Sandoz will likely achieve the lower end of its 24-26% core EBITDA margin target by 2028. To reach the higher end, Sandoz would need substantial cost cuts or increased profits from biosimilars. Due to current risks, UBS is hesitant to predict margin growth beyond Sandoz’s own projections.
Despite reaffirming Sandoz’s strong position in the biosimilars market, UBS analysts believe expectations for biosimilar sales have now caught up with reality, leading them to conclude there is no further upside in consensus forecasts.
They also flag a decline in U.S. formulary coverage for Sandoz’s Humira biosimilar, Hyrimoz, in January, noting that Express Scripts—one of the largest PBMs in the U.S.—has reduced coverage in favor of competitors’ products.
While UBS has lowered its earnings estimates, the firm has raised its target price to CHF 44 due to a weaker Swiss franc against the U.S. dollar and adjustments to its valuation methodology.
The DCF model informing the target price assumes a gradual decline in growth beyond 2032, a weighted average cost of capital of 9.0%, and a long-term terminal decline rate of 0.5%.