Novartis AG Boss Updates Q2 Financials and Reaffirms M&A Strategy

Published: Jul 19, 2017

Novartis Boss Updates Q2 Financials and Reaffirms M&A Strategy July 19, 2017
By Mark Terry, Breaking News Staff

Yesterday, Swiss-based Novartis ’ chief executive officer Joe Jimenez spoke with investors and analysts regarding its half-year financials. In it, Jimenez outlined a not-surprising insistence on bolt-on deals in the $2 billion to $5 billion range, which is consistent with what the company has been saying for some time.

Jimenez said, “In terms of M&A, we are still very focused on our strategy of bolt-on acquisitions anywhere from $2 billion to $5 billion would be our sweet spot. I have said previously that valuations are such that it’s very difficult to find acquisitions that are in that range that would add value for Novartis shareholders. So what’s happened is we have moved upstream in terms of earlier stage assets. So you saw us buy Ziarco is one example for atopic dermatitis and a few others over the last six months.”

He referred to a December 2016 deal, where Novartis acquired Ziarco Group Limited, a private company focused on dermatology. As part of the deal, Novartis picked up a once-daily oral H4 receptor antagonist for atopic dermatitis (eczema), ZPL389. No details about the financials of that deal were announced, although in 2015 Ziarco had net sales of $49.4 billion.

John Carroll, writing for Endpoints News, points out that a lot of big pharma companies see the M&A market the same way. He notes that Sanofi needs a big, transformational deal more than most, having recently acquired Protein Sciences’ Flublock for $750 million.

“Ask any of them,” Carroll writes, “and you’re likely to hear that biotech valuations just don’t make sense. Anything that looks ripe from a pipeline perspective is likely going to fetch an inflated price. Just ask Pfizer , which paid $14 billion for Medivation and is still trying to explain it to analysts.”

Otherwise, in its second quarter results, Novartis confirmed its full year guidance. The company reported net sales for the quarter of $12.242 billion, down 2 percent from the same period in 2016, when it reported $12.470 billion. Net sales for the six-month period were $23.8 billion, down 1 percent from last year’s halfway mark of $24.1 billion.

Core operating income for the quarter was $3.2 billion, down three percent from the same period in the previous year. The company indicated that, “Core operating income margin in constant currencies remained flat as generic erosion of Gleevec/Glivec and growth investments were offset by gross margin expansion and productivity. Currency had a negative impact of 0.3 percentage points, resulting in a net decrease of 0.3 percentage points to 26.4 percent of net sales.”

Jimenez said in a statement, “Novartis delivered very strong innovation in Q2 including the positive pivotal trial readouts for RTH258, ACZ885 and CTL019 JULIET, demonstrating the strength of our pipeline. We are on track for the full year guidance. The trajectory of the current growth drivers reinforces our confidence in our next growth phase, which we expect to start in 2018.”

The company’s key growth drivers include Cosentyx, Entresto, Promacta/Revolade, Tafinlar + Mekinist, Jakavi, Tasigna, Gilenya and Kisqali, in addition to its Biopharmaceuticals and Emerging Growth Markets. Cosentyx brought in $490 million in the second quarter, Entresto brought in $110 million, and Promacta/Revolade made $210 million. Tafinlar + Mekinist reported $216 million in quarterly sales, and Jakavi brought in $186 million, driven by myelofibrosis and the launch of a second-line indication for polycythemia vera. Tasigna raised $463 million, Gilenya brought in $837 million, and Kisqali made $8 million.

Biopharmaceuticals for the quarter reported $260 million, up 6 percent, primarily driven by Zarxio in the U.S. Net sales in Emerging Growth markets grew 4 percent, driven by growth in China (10%), Russia (9%), and Brazil (8%).

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