Amid Restructuring and Lawsuits, Novartis AG Indicates It Might Sell $14 Billion Roche Stock Without a Premium
May 25, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Swiss-based Novartis is plenty busy these days, as it split its pharmaceuticals division into two separate units, drug development and oncology, and its pharmaceuticals division head, David Epstein, left the company.
Late last month, the company was considering unloading its shares of Roche (RHHBY)’s voting stock. Between 2001 and 2003, Novartis picked up about one-third of Roche ’s stock, which is currently valued at about $14 billion. This is about six percent of all Roche shares.
There have been several considerations on how that might be done, including Novartis selling the stock back to Roche. In earlier discussions, Novartis chief executive officer Joe Jimenez has indicated he would want a premium price for the shares. Today, however, Jimenez indicated he would consider selling it without requiring a premium.
“We would now think through that,” Jimenez told investors at a meeting held in Basel, Switzerland, “and would potentially make a decision to exit without a premium, if the opportunity were right.”
In addition to the company restructuring, seven top executives have left the company this year. It is also battling a lawsuit by the U.S. government regarding kickbacks. Those kickbacks included overblown speaking fees and expensive dinners, with one example being a dinner for three people at the Japanese restaurant Nobu that came to almost $10,000. Twenty-seven states, the District of Columbia, New York City and Chicago are plaintiffs in the lawsuit.
“Novartis corrupted the prescription drug dispensing process,” said U.S. Attorney Preet Bharara in a statement. “For its investment, Novartis reaped dramatically increased profits on these drugs, and Medicare, Medicaid, and other federal healthcare programs were left holding the bag.”
At the event in Basel, Jiminez addressed the practices that led to the lawsuits, indicating the company was shifting away from its “result-oriented” sales approach. “We had to shift the culture of the company in terms of a compliance standpoint.”
The company took a hit for its multiple sclerosis (MS) drug, Gilenya, when several cases of a rare and potentially deadly side effect, progressive multifocal leukoencephalopathy (PML) were reported, although no direct link has been made. But the news didn’t help share prices or overall sales of the drug.
Net income dropped to $2.79 billion in the first quarter, and sales fell to $11.6 billion. Core operating profit dropped 11 percent in the same quarter. The company’s blood cancer drug Gleevec, had better-than-expected sales, but lost its patent protection this year.
Alcon , Novartis’s eye care unit, which is being restructured, had sales drop 7 percent to $1.4 billion.
Not all of Novartis’s news is bad, however. On May 19, an independent Data Monitoring Committee recommended an early halt to a Phase III trial due to clinically meaningful improvement. The drug being evaluated, LEE011 (ribociclib), is a cyclin dependent kinase inhibitor (CDK4/6), and is being studied in combination with letrozole for advanced breast cancer.
At the moment, the company has indicated that its priorities for cash were to grow organically, increase dividends, and conduct some “bolt-on” acquisitions and share buybacks.