April 25, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Between 2001 and 2003, Novartis picked up about one-third of Roche ’s voting stock, which is currently worth about $14 billion. Novartis is evaluating ways of unloading the shares, potentially to generate cash for acquisitions.
The holding is equal to about 6 percent of all Roche shares. Originally, they were acquired for a potential merger, which didn’t occur. When then chairman and chief executive officer Daniel Vasella left Novartis in 2013, analysts and investors started speculating on when it would sell off its holdings, which may be now, although some inside sources are saying it’s not any time soon.
“Sooner or later the stake will be sold and Novartis is talking to banks about how it could be done,” an unidentified source told Reuters. “But nothing is imminent.”
There have been suggestions before that Novartis sell the stock back to Novartis, but current Novartis head Joe Jiminez had indicated he would want a premium price for the shares. Roche, however, hasn’t expressed much enthusiasm for the approach and doesn’t generally treat share buybacks as much of a priority.
Reuters’ source says that the “cleanest” process for unloading the stake would be a book process with selected investors. A Swiss newspaper, Sonntagszeitung, reported this as a possible approach, in which “banks collect purchase offers within a predefined price range from selected investors, weekly.”
Both companies are headquartered in Basel, Switzerland. Late last year, Bloomberg reported an interview Novartis chairman Joerg Reinhardt gave with Blianz Business Talk regarding the shares and a possible merger. “On paper,” he told the paper, “you can generate a lot of value, that is true.” However, his feeling was that staying two separate, independent companies was best for both companies and for the Swiss economy.
Although analysts and investors often urge large, transformative mergers, both companies have tended to shy away from that approach. “I would from our perspective,” Reinhardt told Blianz Business Talk, “certainly for the foreseeable future, rule out” big mergers.
Novartis has taken 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. PML is a rare and often fatal viral infection. Symptoms involve progressive inflammation of the white matter in the brain at various locations.
It’s not clear if there’s a direct link between Gilenya and PML, but it didn’t help share prices or overall sales of the drug. It recently reported first-quarter revenues, and core net income dropped 13 percent as it faces patent expirations, problems with its eye care business, and disappointing sales for its new cardiac medicine.
Net income dropped to $2.79 billion, and sales fell to $11.6 billion. Core operating profit dropped 11 percent in the first quarter. The company’s blood cancer drug Gleevec, however, had better-than-expected sales, although it lost patent protection this year.
The company’s Entresto, a new cardiac drug, reported $17 million in sales the first quarter. And Alcon , the company’s eye care unit, which is being restructured, had sales drop 7 percent to $1.4 billion.
“As expected, our results reflect additional investments behind our new launches and Alcon,” said Jiminez in a statement. “We are on track with the plan we outlined in January to further focus our divisions, drive greater innovation and significant synergies and productivity. I remain confident in our long-term growth prospects.”
Analysts, however, aren’t quite as optimistic. “Novartis is in a time of need, having had setbacks with both Alcon and Entresto,” Tim Anderson, an analyst with Bernstein, wrote in a note to investors on Sunday, “and investor sentiment is languishing.” He suggested that Novartis making strategic acquisitions in biotech or ophthalmology as “distinctly possible.”
Anderson went on to say, “But, would an acquisition in the teens billion dollar range be a transformative deal? No. Rather, it would be a mid-sized bolt-on, but one that investors might be receptive to, given the current state of the business.”
