Investors Antsy as Novartis AG Mulls Over Selling $50 Billion in Assets

Published: May 31, 2017

Investors Antsy as Novartis AG Mulls Over Selling $50 Billion in Assets May 30, 2017
By Mark Terry, BioSpace.com Breaking News Staff

While Switzerland-based Novartis AG considers selling off some of its largest assets, investors are concerned the company might then invest the proceeds poorly. There’s no pleasing some investors, who generally think the asset sales are a good idea.

In 2011, Novartis acquired U.S.-based eye care company Alcon for $52 billion. The last two years, at least, the unit’s sales and profits have done poorly. Joe Jiminez, Novartis’ chief executive officer, is considering selling off Alcon’s surgical devices and contact lens businesses, which could bring in $25 to $35 billion. He is also reportedly considering unloading its $14 billion stake in Switzerland-based Roche in addition to the over-the-counter (OTC) drugs partnership with GlaxoSmithKline , which is valued at around $10 billion.

“We would applaud selling those stakes generally,” Stephen Anness of Invesco Perpetual, Novartis’ 23rd largest shareholder, told Reuters. “But what do you do with that money? I would be very cautious about selling stakes … in things to raise a war-chest to go and do a massive deal, only for that deal to go and be another poor deal.”

Jiminez in the past has indicated that Novartis will focus on smaller, strategic transactions, including drug licensing deals up to $5 billion. But he hasn’t really said he wouldn’t do larger deals, either.

“We’re always monitoring what’s going on but have not changed our position regarding our M&A strategy or potential disposals,” Michael Willi, a Novartis spokesman, told Reuters.

Michael Leuchten, an analyst with UBS, told Reuters, “We believe that Novartis may be pushed to liquidate assets in order to finance acquisitions in pharma.”

Specifically, Novartis is lagging behind its competitors Roche, Merck and Bristol-Myers Squibb in the lucrative immuno-oncology (I-O) market. Although those three competitors all have I-O drugs on the market, Novartis’ immuno-oncology molecules are in the investigational stage.

One rumor is that Novartis might consider acquiring AstraZeneca (AZN). In the I-O market, AstraZeneca’s Imfinzi (durvalumab) received accelerated approval from the U.S. Food and Drug Administration (FDA) earlier this month for locally advanced or metastatic urothelial carcinoma (mUC) in patients whose disease progression during or following platinum-containing chemotherapy, or whose disease has progressed within 12 months of receiving platinum-containing chemotherapy before or after surgery. It is also being evaluated in a Phase III trial as a first-line treatment in urothelial carcinoma as monotherapy and in combination with tremelimumab.

Reuters writes, “For its OTC joint venture with GSK that emerged out of their 2014 asset swap, Novartis faces a March 2018 deadline to exercise its put option for its 36.5 percent stake. People familiar with GSK’s thinking confirmed the British group would be a willing buyer of the stake, which added $234 million to Novartis’s profit last year.”

Novartis’ sales have dropped nine quarters, which prompted Jiminez’s strategic review. People inside and outside the company are viewing the Alcon acquisition as an expensive mistake. Reuters writes, “Alcon’s problems have coincided not only with the patent expiration of its blockbuster cancer drug Gleevec but also with the lackluster launch of Novartis’s new heart failure medicine Entresto, which in 2016 missed sales expectations. Like Alcon, Entresto has forced the company to step up marketing investment.”

An unidentified top-60 Novartis investor told Reuters that the Alcon and Entresto missteps are what is making everyone question whether Novartis could handle a big acquisition. “A big deal might solve some of their issues, but personally I would prefer to see them doing smaller acquisitions,” he told Reuters. “A cash mountain of $50 billion would definitely make me nervous.”

Back to news