Novartis to Focus on Mid-Sized Deals, CEO Jimenez Says

Novartis AG will limit deals to $4 billion this year and won’t sell assets such as its money-losing vaccines unit, Chief Executive Officer Joe Jimenez said.

“I don’t think we need a big acquisition in the short term,” Jimenez said in an interview at the JPMorgan Chase & Co. health conference in San Francisco. “You may see us do more bolt-ons,” that would range “between $2 billion and $4 billion, not more than that.”

The Basel, Switzerland-based drugmaker wants to grow its generics business by adding respiratory and dermatology products as well as injectable cancer therapies, Jimenez said. The Swiss drugmaker may do more transactions similar to last year’s $1.5 billion acquisition of closely held Fougera Pharmaceuticals, which allowed it to gain generic skin medications.

Novartis, Europe’s second-biggest pharmaceutical company, is on the prowl for assets that will help it fill revenue holes left by expired patents. Jimenez is facing declining sales of Diovan, a medicine for blood pressure that lost patent protection in the U.S. last year. The company’s cancer treatment Gleevec will start losing patent protection in the U.S. in 2015 and in Europe in 2016.

New Products

Novartis is introducing new products, such as the Afinitor cancer treatment, to help sustain sales. In November, it won the backing of the European Union’s drug regulator for its Bexsero meningitis shot, which Jimenez said will help build up the company’s vaccine division, obtained through the $7.5 billion acquisition of Chiron Corp. in 2006.

Novartis rose 0.6 percent to 59.55 Swiss francs in Swiss trading. The stock has gained 8.9 percent in the past year.

Jimenez said he had no plans to sell the smaller units, including vaccines, animal health, and consumer health.

The three businesses “still play an important role” in Novartis’s portfolio, he said. Vaccines are important because “prevention is going to be a growth area.”

The Chiron deal also gave Novartis a set of blood tests for viruses including HIV and hepatitis. That business “may not be as strategic as some of our other businesses” even though “it’s a good cash generator,” Jimenez said.

Novartis recorded a $291 million operating loss at its vaccines division in the first nine months of 2012, according to an Oct. 25 statement available on the company’s website. The vaccines business may still not break even in 2013, even as Bexsero is introduced in Europe, Peter Verdult, an analyst at Morgan Stanley based in London wrote in a Dec. 7 report to clients.

The Swiss company still has about $15 billion of debt following the purchase of the Alcon eye-care division.

“Keeping dividends strong” will be “a number one priority,” Jimenez said.

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