Tangled Rivalry Shows No Sign of End in Novartis-Roche Union

  • Reinhardt declines to comment on plans for stake in Roche
  • Franz and Reinhardt repudiate any plans for major takeovers

Europe’s two biggest drugmakers disclaimed any desire to combine operations by building on the 33 percent stake that Novartis AG already owns in rival Roche Holding AG.

“On paper, you can generate a lot of value, that is true,” Novartis Chairman Joerg Reinhardt told Bilanz Business Talk in an interview from Zurich. That discussion, which included Roche Chairman Christoph Franz, airs Sunday on Swiss television channel SRF1.

Still, staying independent is best for both the companies and for Switzerland’s economy, said Reinhardt, 59, while refusing to discuss specific plans for the stake. The holding, which was initially acquired more than a decade ago, is now valued at about $14 billion.

Their proximity -- both drugmakers are headquartered in the city of Basel, Switzerland’s smallest canton by area -- stokes competition, Franz said.

Fierce Rivalry

“You look closely at what the neighbor on the other side of the Rhine is doing,” Franz, 55, said. “A certain ambition is awoken: you won’t get too comfortable.”

It’s a close competition: Novartis is the larger company by market value (Reinhardt says he doesn’t look at the share price every day, and Franz asserts that he keeps his eyes on a 5-10 year horizon), while the two are a hair’s breadth apart on revenue.

Shares of Novartis have climbed 4.6 percent in the past year, while Roche has dropped 4.4 percent.

Adding spice to the rivalry, Novartis acquired GlaxoSmithKline Plc’s cancer-medicine business earlier this year. That helped bolster the Swiss company’s oncology sales in the second quarter by 30 percent from a year earlier, narrowing the lead held by Roche, the world’s biggest maker of cancer drugs.

And even the Swiss franc’s appreciation won’t drive them out of Basel, the heads of both companies signaled. The nation, which topped the World Economic Forum’s competitiveness ranking for a seventh consecutive year, has been beset by concerns that the removal of the currency’s cap against the euro, as well as near-zero inflation and negative interest rates, would undermine its ability to expand the economy.

Basel Home

The cost of a location isn’t the only factor in determining its quality, said Franz. The number of scientists, research sites and biotech companies available to facilitate innovation, as well as patent protection and a tax regime that isn’t too onerous, have to play a part, he said.

Switzerland will remain a “very important and attractive location” for Roche for the next decade, Franz said in the interview with the magazine.

The European nation is home to the majority of research and development operations for Novartis, Reinhardt said. “We will stay on this level in the foreseeable future.”

Both men brushed away any suggestion that they may do a large, transformative acquisition amid the unprecedented wave of mergers and takeovers in the global pharmaceutical industry this year.

“Our philosophy is, we want to grow organically,” said Roche’s Franz. But expiring patents on major drugs and the pressure on pharmaceutical companies to replace those with equally big, cutting-edge new treatments cause both the management and the board “to sweat,” he acknowledged.

Novartis has been focused on small acquisitions for the past 10 years, and will continue to stay that way, Reinhardt said. While buying smaller companies, which are engaged in a lot of innovation, are “essential” for growth, large transactions carry “great risks.”

“I would from our perspective, certainly for the foreseeable future, rule out” large takeovers, Reinhardt said.

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