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* Novartis mulls asset disposals of some $50 billion
* Large transaction could fill cancer portfolio holes
* Investors wary of big transaction after Alcon woes
By John Miller
ZURICH, May 30 As Novartis considers
asset sales that could raise $50 billion, investors are worried
any cash raised may give the Swiss drugmaker firepower for
another unsuccessful megadeal.
Novartis's $52 billion takeover of U.S.-based eye care giant
Alcon, completed in 2011, saddled it with a business whose sales
and profit have faltered two years running.
Now, Chief Executive Joe Jimenez is reviewing Alcon's
surgical devices and contact lens businesses, suggesting they
could be valued at $25-$35 billion if he unloads them.
The American CEO is also considering disposal of a roughly
$14 billion stake in cross-town rival Roche, as well as his
over-the-counter (OTC) drugs venture with GlaxoSmithKline
, worth some $10 billion.
Given Alcon missteps, however, investors are wary about
arming Novartis with a pile of cash, for fear managers eager to
refocus on cancer drugs as they address a sales hit from patent
expiries might blunder into a big takeover.
"We would applaud selling those stakes, generally," said
Stephen Anness of Invesco Perpetual, Novartis's 23rd largest
shareholder, according to Thomson Reuters data.
"But what do you do with that money?" Anness said. "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."
To be sure, Jimenez has said Novartis's M&A focus remains on
smaller transactions, including lower-risk drug licensing deals,
ranging up to $5 billion.
Still, Jimenez has not dismissed the notion of a larger
transaction. He suggested last year the Roche stake - amassed
during former chairman and CEO Daniel Vasella's unrequited
merger aspirations two decades ago - could be sold once another,
potentially more significant transaction is lined up to absorb
"We’re always monitoring what’s going on but have not
changed our position regarding our M&A strategy or potential
disposals," Novartis spokesman Michael Willi told Reuters.
Novartis, which is holding a two-day investor event in
Boston on Tuesday and Wednesday, has portfolio holes a major
deal could help fill.
Where rivals including Roche, Merck and
Bristol-Myers Squibb have immuno-oncology drugs (I-O) on
the market for a range of cancers, Novartis has only
investigational molecules in this hot new therapy area.
Vas Narasimhan, Novartis's drug development chief, could be
tempted to look outside the company, some analysts said,
especially as competitors including AstraZeneca near
approval for their own I-O molecules.
"We believe that Novartis may be pushed to liquidate assets
in order to finance acquisitions in pharma," said Michael
Leuchten, a UBS analyst.
Speculation that Novartis might buy AstraZeneca sparked a
brief jump in the British company's stock last year. There has
also been talk of its interest in Bristol-Myers.
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.
Alcon, whose eye drugs portfolio was moved into Novartis's
main pharmaceuticals unit last year, has been trimmed to include
surgical equipment for conditions like cataracts as well as
contact lenses and solutions.
When Jimenez began his strategic review this year, he said
"all options were on the table". Sales have fallen nine
quarters, necessitating a costly programme to arrest the
Even Vasella, who bought Alcon as he sought to build up a
European healthcare giant akin to Johnson & Johnson, now
acknowledges the transaction was a mistake.
Alcon's problems have coincided not only with the patent
expiration of its blockbuster cancer drug Gleevec but also with
the lacklustre 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
A fund manager among Novartis's top-60 investors said the
Alcon and Entresto stumbles raise red flags about managers'
ability to tackle business challenges like a big takeover.
"A big deal might solve some of their issues, but personally
I would prefer to see them doing smaller acquisitions," the
investor said. "A cash mountain of $50 billion would definitely
make me nervous."
(Additional reporting by Simon Jessop and Ben Hirschler in
London; editing by Anna Willard)