Novartis AG Hunts for Bolt-On Acquisitions Worth $2 Billion to $5 Billion
April 23, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor
Switzerland-based Novartis CEO Joseph Jimenez reiterated on an earnings call Thursday that the world’s largest pharmaceutical company is on the hunt for strategic mergers and acquisitions in the range of $2 billion to $5 billion.
Jimenez also said Novartis will see productivity gains of 3 to 4 percent for sales this year and has no change on its stake policy in Swiss drugmaker Roche. He did say, however, that Novartis has been disappointed in a recent buy, pointing out that its new GlaxoSmithKline’s oncology pipeline contributed less than $200 million in sales in the first quarter of 2015.
That overall news came as no surprise to Wall Street, with Maxim Jacobs, an analyst at Edison Investment Research, saying Monday that a strong dollar made difficult headwinds for Novartis over the last quarter.
“Novartis had a solid quarter operationally but they got completely crushed by the strong U.S .currency,” said Jacobs. “A whopping 10 percent was shaved off of sales and 15 percent from net income because of the strong U.S. dollar. Usually international diversification is a good thing but with the wild currency moves we’ve seen lately, even a good quarter can be made to look weak.”
Still, the push to do more deal remains strong in Novartis’ C-level suite. In March Jimenez fleshed out that strategy, telling the Nikkei Asian Review that it will do more deals in 2015, as it attempts to move past tensions with Japanese authorities.
“We are considering M&A to build our three big divisions,” said Jimenez. “Not very large M&A but what we call "bolt on acquisitions," somewhere between $2 billion to 5 billion purchases, where we would just pluck them right into Pharma or Alcon Laboratories, Inc. (ACL) to strengthen the portfolio. We will do more M&A.”
In February, Zurich, Switzerland-based Novartis AG reported that Japan’s Ministry of Health, Labor and Welfare (MHLW) sent the company pre-notification that it would suspend the company’s Japanese business unit, Novartis Pharma K.K. (NVS) temporarily.
“While we would need to evaluate the details of any proposed business suspension Order from the MHLW,” the company said in a statement, “we believe that the financial impact will be manageable.” Jimenez addressed the scandal in his interview, saying how it handles the fallout could actually improve its reputation in the long run.
“We did take a reputational hit in Japan, because of the investigator-initiated trial, and there was a former employee that had a conflict of interest, as announced. But what we are trying to do now is put that behind us. The way that we are going to build our reputation in Japan is through our science. If you think about the Japanese population, it still has a high level of medical need,” he said.
“If we focus on bringing new and innovative medicines to Japan, that will improve our reputation. One example is our new drug called Cosentyx. This is for psoriasis. We actually had approval for Japan before the U.S. and Europe, which just occurred in the fourth quarter,” said Jimenez.
“Japan approved the drug because it's got best-in-class efficacy, and there are many patients in Japan that need it. If we can just focus on the science, I think the reputation of Novartis will be built to a very strong level.”
Jimenez told Nikkei the company was now refocusing its business efforts, and talked in depth about its M&A deals made last year.
“For us, it was all about focusing our company on three big businesses -- Pharma, eye-care Alcon and generics Sandoz. Those are three leading businesses, and our view of the future is that ... health care is going to be difficult, because you've got an aging population,” he said.
“Many of the health systems around the world are going to be under cost-containment pressure. To win, you better be big in those sectors you compete, and have innovation power. If you can innovate, then you have global scale and are successful,” said Jimenez.
“For us, I talked to every CEO in the industry and said, ‘What are you trying to do with your portfolio? I'm trying to take my smaller divisions and make them bigger or find homes for them.’ That led to our transaction with GlaxoSmithKline, because by Novartis acquiring the oncology business of GSK, we take our No. 2 position and make it even stronger and GSK takes our vaccines business and they become No. 1 in vaccines. That's what behind [all of the activity]. It's [a matter of] trying to get bigger where we choose to compete.
Japan’s suspension was related to the company’s failure to report the side effects of two of its leukemia medications, Tasigna and Gleevec.
This follows problems Novartis has had with the Japanese unit over the last year. In May the health Ministry began investigating the Tasigna study, which found that, of 3,000 Japanese patients taking the drug, 30 had side effects, some which weren’t reported to the government appropriately.
It also follows the arrest of a former Novartis AG employee, Nobuo Shirahashi, for suspicion of falsifying research data. Shirahashi was accused of altering data involving blood pressure medication Diovan. Other staffers were alleged to have shredded documents and deleted online files. The company made changes to top management in Japan as a result, and re-evaluated and modified its governance practices.
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