- Novartis intends to sell its stake in fellow Swiss pharmaceutical giant Roche, a transaction expected to net billions of dollars for Novartis to invest in its business.
- A shareholder of Roche since 2001, Novartis owns 53.3 million bearer shares of the company's common stock, representing about one-third of all total outstanding bearer shares. The plan now is to sell each share for $388.99, for a total value of $20.7 billion. Novartis, which paid around $5 billion for the stake, said it will report a gain of approximately $14 billion from its sale.
- Over the past several years, there has been speculation about the Roche stake and whether Novartis would sell to free up cash for dealmaking or added research and development. Under CEO Vas Narasimhan, Novartis has moved away from business lines like consumer health, generics and eye care, opting instead to focus on higher-margin branded prescription drugs.
Novartis acquired its stake in Roche over a two-year period in the early 2000s, when the company was led by Daniel Vasella, an integral figure in the merger between Sandoz and Ciba-Geigy that ultimately established Novartis in 1996.
At the time, the investment created considerable buzz. Novartis and Roche were natural rivals, each running some of the world's largest pharmaceutical businesses from headquarters in Basel, Switzerland. That Novartis would pour billions of dollars into Roche hinted, to some, the possibility of a future merger between the giants.
But a tie-up never happened. Two decades later, the companies remain stiff competitors. In the treatment of relapsing multiple sclerosis, for example, Novartis' Kesimpta is presenting a fresh challenge to Roche's Ocrevus. And in spinal muscular atrophy, a relatively new pill from Roche threatens to take market share away from Novartis' Zolgensma gene therapy.
For Novartis, the past few years have been a time of transition. In early 2018, shortly after Narasimhan took the reins from Joseph Jimenez, who himself succeeded Vasella in 2010, the company decided to sell its stake in a joint consumer health venture with GlaxoSmithKline for $13 billion.
The next year, Novartis spun its Alcon eye care unit into an independent company. And during its most recent earnings call, the big pharma said it's considering offloading the Sandoz generic drug business, which has struggled to generate consistently higher profits.
These moves have, in turn, allowed Novartis to put more resources and attention into its "Innovative Medicines" division, which is responsible for finding and developing higher-margin branded prescription drugs. Kesimpta and Zolgensma are part of that division, as are the heart failure medication Entresto, the anti-inflammatory agent Cosentyx, and the breast cancer treatment Kisquali.
During the third quarter, Novartis reported net sales of $13 billion, a 6% increase year over year that was driven by the performance of the Innovative Medicines division.
Now, Novartis says it doesn't see the Roche investment as in tune with the company's core business. Sale of the stake will therefore provide a cash windfall that Novartis believes will help further build on its strategy.
"After more than 20 years as a shareholder of Roche, we concluded that now is the right time to monetize our investment," Narasimhan said in a Nov. 4 statement. "Today's announcement is consistent with our strategic focus and we intend to deploy the proceeds from the transaction in line with our capital allocation priorities to maximize shareholder value and continue to reimagine medicine."
Novartis' share price was relatively unchanged Thursday, whereas shares of Roche, which trade on the Swiss stock exchange, were up a little more than 2%.
The sale still needs to be approved by Roche shareholders during a meeting to be held on Nov. 26.
In its own statement, Roche said that it intends to cancel the shares repurchased from Novartis after completion of the repurchase. The company noted, too, how the transaction would not change control of the company, but rather increase the voting power of the pool formed by shareholders of the company's founding families to 67.5%.
Additionally, the sale would increase the percentage of shares held by the public from 16.6% to 24.9%.