Novartis to Review Business as Reinhardt Becomes Chairman

Novartis AG (NOVN) will start a strategic review of its units as early as next week and would consider a $10 billion purchase among options for bolstering the business, Chairman Joerg Reinhardt said.

“We will also start next week to look at our portfolio based on strategic perspectives going forward,” Reinhardt, 57, said in an interview at the company’s Basel, Switzerland, headquarters yesterday. While smaller deals remain attractive, “Novartis would be willing to invest significant money for a very good opportunity. I don’t think a $10 billion acquisition is out of reach.”

Reinhardt, who took over as chairman this month, is facing investors’ calls to unwind key parts of the company his predecessor Daniel Vasella built, including a stake in Roche Holding AG (RO), Switzerland’s other major drug company, or to jettison or revamp less profitable divisions such as the vaccines business. The company will probably come to a decision on its composition over the next few months, Reinhardt said.

“Novartis is a diversified business; it will continue to be a diversified business,” Reinhardt said. “On the other hand, I believe active portfolio management is part of the strategic management of the company.”

Source: Novartis AG via Bloomberg

Novartis AG Chairman Joerg Reinhard siad, “Novartis would be willing to invest significant money for a very good opportunity. I don’t think a $10 billion acquisition is out of reach.” Close

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Source: Novartis AG via Bloomberg

Novartis AG Chairman Joerg Reinhard siad, “Novartis would be willing to invest significant money for a very good opportunity. I don’t think a $10 billion acquisition is out of reach.”

CEO Contest

Reinhardt worked at Novartis for 28 years before joining Bayer AG (BAYN) in 2010 to run the health-care business. He left Novartis after losing the contest for chief executive officer to Joe Jimenez, the current CEO.

Reinhardt is also tasked with calming the waters after Vasella’s salary and planned $78 million golden handshake caused an outcry against excessive pay in Switzerland. The company last month said it will cut Vasella’s compensation to at least $5.95 million for helping to transition to the new chairman, and a set number of days coaching company executives during the next three years.

“Beyond that, the interaction of the company with Dr. Vasella will be limited,” Reinhardt said.

Novartis rose 0.7 percent to 68.85 Swiss francs at 9:55 a.m. in Zurich trading today. The stock has increased 23 percent in the past year including reinvested dividends, compared with a 19 percent return for the Bloomberg Europe Pharmaceutical Index.

‘All Options’

The Swiss company has five units: the Alcon eye-care business, pharmaceuticals, vaccines and diagnostics, the Sandoz generic-medicines division, and consumer health care, which includes both over-the-counter medicines and animal-health products. Novartis wants its businesses to be among the industry leaders or will otherwise consider divesting them, Reinhardt said.

In an Aug. 9 note to investors, Citigroup Inc. analyst Andrew Baum said Reinhardt should consider “all strategic options” for the vaccines unit which “has failed to deliver.” The OTC business should be sold, and the animal-health division needs “more aggressive management to compete with industry leaders,” Baum said.

Novartis is out of the bidding for Onyx Pharmaceuticals Inc. (ONXX), according to a person familiar with the situation. Onyx’s current valuation made it too expensive, said the person, who declined to be identified because the matter is private. Onyx closed yesterday at $124.88, giving the South San Francisco, California-based company a market value of $9.16 billion.

Onyx Suitors

Novartis was among drugmakers that had expressed interest in Onyx, Bloomberg reported in July. Onyx is involved with several potential purchasers, Chief Executive Officer N. Anthony Coles said Aug. 9. Lori Melancon, a spokeswoman for Onyx, said the company wouldn’t comment on rumors and speculation. Novartis spokesman Eric Althoff also declined to comment.

It makes sense to have the vaccines business in a separate unit because of “idiosyncrasies” in production, distribution and marketing, Reinhardt said.

“Obviously there are potential synergies in the backbone, finance and other supportive functions,” Reinhardt said, referring to the drug and vaccines units. “People are currently looking at that, but it’s too early to quantify potential synergies a combination would bring.”

Novartis will seek ways to expand the animal-health unit “organically or inorganically” over the next few years, Reinhardt said. The company may also consider entering into a partnership to bolster the unit, and should the measures fail, Novartis will exit the business, Reinhardt said.

Consumer Health

The consumer-health division, which sells the Excedrin pain reliever and the Theraflu cough and cold treatment, returned to growth in the first quarter after manufacturing woes at a U.S. plant.

“From a long-term perspective, OTC is attractive,” Reinhardt said. “However, again Novartis is not among the top players and it will be necessary to strengthen that business going forward, if we decide to stay in it.”

Building the OTC business will require more than one acquisition, and so will take more time, he said.

“It will not happen overnight,” Reinhardt said.

Investors and analysts have also pushed the company to sell its stake in Roche, an investment valued at about $10 billion. The holding is a “financial investment with a strategic touch,” and while there is “no hurry” make any changes, the company will also look at its investments in the course of its strategic review, Reinhardt said.

The chairman said he wants to “start a dialogue” with investors to get their perspectives on the company.

“One of my priorities going forward it is to do active stakeholder management,” Reinhardt said. “Beyond that, I believe there’s no necessity to change the way business is being conducted at Novartis.”

To contact the reporter on this story: Eva von Schaper in Munich at evonschaper@bloomberg.net

To contact the editor responsible for this story: Kristen Hallam at khallam@bloomberg.net

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