Sandoz Sales of $2.94 Billion Miss Estimates; Shares Fall More Than 5%

Key Facts

Sandoz shares fell more than 5% in early trading on October 28 after the company reported quarterly sales below analyst estimates and lowered its sales growth outlook, according to Reuters. Third-quarter net sales were $2.94 billion, compared with expectations of $3.01 billion. The figures came as Europe’s antibiotics business faces pressure from lower-cost Chinese competitors and rising production costs. The pressure is centered on the Austrian plant in Kundl, which Reuters described as the last site in Europe to produce penicillin from start to finish, including active ingredients. EL7 data showed SDZNY closing at $99.36 on October 27, before the shares fell in the next early trading session.

Kundl’s location gives the plant significance beyond finished-drug production, as its production line includes the integrated manufacture of the active ingredients needed for penicillin. But Reuters said Chinese producers supply the same antibiotics and their ingredients to the European market at lower cost than Sandoz’s plant in Austria. This price gap puts the plant in direct competition in a market where purchasing decisions depend on the cost of the medicine. The company said the facility remains exposed to risk because European governments’ procurement policies favor the lowest price. This mechanism limits Sandoz’s ability to pass higher costs on to buyers, even as local antibiotic production remains important.

Price competition coincides with the burden of high energy costs in Europe, Reuters reported, citing the company. Meanwhile, European penicillin prices have remained stable or declined as energy costs have risen, according to the report. The combination weighs on the plant’s commercial viability: higher operating costs on one side, and prices that are not rising enough to keep pace on the other. Procurement based on the lowest bid also strengthens the advantage of lower-cost suppliers, according to Sandoz’s argument. This leaves the Kundl facility, despite its role in Europe’s supply chain, facing pressure from both manufacturing costs and competitive terms.

In a commercial move to address part of this competition, Sandoz asked the European Commission to open an anti-dumping investigation into Chinese amoxicillin ingredients, according to Reuters. The investigation could lead to tariffs on those ingredients, making the request a potential route to changing the terms of price competition. Reuters quoted the company as saying China is "flooding the market with cheap active pharmaceutical ingredients." The European Commission did not comment on Sandoz’s request at the time the report was published. The Commission was expected to open the investigation soon, but the timing remained unclear.